Capital Change and the Cost of Equity: Evidence from Bulgarian Banks. Is there a Modigliani-Miller offset?
International Journal of Economics & Business Administration (IJEBA), 2016, vol. IV, issue 3, 47-59
This paper studies the cost of equity and capital of three Bulgarian listed banks in the framework of the Modigliani-Miller (MM) theory of capital structure. It measures the impact of an increase in capital ratios on the equity risk (equity beta) of these banks. It finds that, historically, while more equity results in lower banksâ€™ systematic risk no causal relationship can be found between an increase in capital ratios and the predicted by the theory decrease in banksâ€™ systematic risk. MM irrelevance argument holds that a decrease in equity risk will lead to a decrease in the shareholdersâ€™ required (and expected) return on equity and thus offsetting the higher equity (capital) level. Thus, the results cannot find evidence in support of the so-called 'Modigliani-Miller' offset.
Keywords: cost of bank capital of Bulgarian banks; equity beta; Modigliani-Miller theorem for banks; cost of equity (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ers:ijebaa:v:iv:y:2016:i:2:p:47-59
Access Statistics for this article
More articles in International Journal of Economics & Business Administration (IJEBA) from International Journal of Economics & Business Administration (IJEBA)
Series data maintained by Marios Agiomavritis ().