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Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms

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Author Info
 Kane, Edward J
Unal, Haluk
Abstract

Hidden capital exists whenever the accounting measure of a firm's net worth diverges from its economic value. Such unbooked capital has on-balance-sheet and off-balance-sheet sources. This paper develops a model to estimate both forms of hidden capital and to test hypotheses about their determinants. In effect, the analysis expands the two-index model by endogenizing the market and interest-rate sensitivities of any stock and decomposing each sensitivity into on-balance-sheet and off-balance-sheet elements. For a sample of banks during 1975-85, the model finds considerable variation in both forms of hidden capital. Copyright 1990 by American Finance Association.

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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 45 (1990)
Issue (Month): 1 (March)
Pages: 113-36
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Handle: RePEc:bla:jfinan:v:45:y:1990:i:1:p:113-36

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