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Are Banks Less Likely to Issue Equity When They Are Less Capitalized?

Valeriya Dinger and Francesco Vallascas ()
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Francesco Vallascas: University of Leeds

No 100, IEER Working Papers from Institute of Empirical Economic Research, Osnabrueck University

Abstract: Debt overhang and moral hazard related to risk-shifting opportunities predict that low capitalized banks have a lower likelihood to issue equity. In contrast to this view, for an international sample of bank Seasoned Equity Offerings (SEOs), we show that the likelihood of issuing an SEO is generally higher in low capitalized banks. We provide a series of tests exploring the variation of capital regulation, systemic conditions and market discipline to understand the driving forces behind this result. We find that market mechanisms rather than capital regulation are the primary, key driver of the decision to issue by low capitalized banks.

Keywords: SEOs; Banking Regulation; Banking Crises; Counter-cyclical capital regulation (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2014-09-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn and nep-reg
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