Excess control rights, bank capital structure adjustment and lending

Laetitia Lepetit, Amine Tarazi and Nadia Zedek ()
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Nadia Zedek: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: We investigate whether excess control rights of ultimate owners in pyramids affect banks' adjustment to their target capital ratio. When ultimate control rights and cash-flow rights are identical, banks increase their capital ratio by issuing equity and by reshuffling their assets without slowing their lending. However, when control rights exceed cash-flow rights, banks are reluctant to issue equity to increase their capital ratio and, instead, shrink their assets by mainly cutting their lending. A deeper investigation shows that this behavior is only apparent in family-controlled banks and in countries with relatively weak shareholder protection rights. Our findings provide new insights in the capital structure adjustment process and have critical policy implications for the implementation of Basel III.

Keywords: Dynamic capital structure; pyramids; bank lending; European banking; excess control rights (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (37)

Published in Journal of Financial Economics, 2015, 115 (3), pp.574-591

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Related works:
Journal Article: Excess control rights, bank capital structure adjustments, and lending (2015)
Working Paper: Excess control rights, bank capital structure adjustments, and lending (2015)
Working Paper: Excess control rights, bank capital structure adjustment and lending (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01134842

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