IDEAS home Printed from https://ideas.repec.org/a/wsi/jfmmix/v09y2021i01ns2282717x21500018.html
   My bibliography  Save this article

The Association Of Sfas 166/167 And Cost Of Equity Capital: Evidence From Banks

Author

Listed:
  • QIUHONG ZHAO

    (College of Business, Texas A&M University Corpus Christi 6300 Ocean Drive, Unit 5808, Corpus Christi, Texas 78412, USA)

  • DANA A. FORGIONE

    (Endowed Chair of the Jessie Frances Neal Foundation & Clifton W. Coonrod Endowment Texas A&M University Corpus Christi, 6300 Ocean Drive, Corpus Christi, Texas 78412, USA)

Abstract

We examine whether SFAS 166/167, which ended exclusion of qualifying special purpose entities (QSPEs) from consolidation, impacted the cost of equity capital for a sample of banks. This exclusion previously allowed banks to avoid consolidating many, risky asset securitization transactions. These transactions were prevalent during and after the global financial crisis (GFC). We compare changes in the cost of equity capital for a sample of banks that consolidated SPEs after implementation of SFAS 166/167, to a control group of banks that reported no material impact of SFAS 166/167. We find the cost of equity capital increased significantly more for the banks consolidating previously unconsolidated SPE’s, than for the banks that were relatively unaffected by the rule change. In particular, we find that banks with greater reductions to their reported Tier-1 capital ratios as a result of consolidation are associated with significantly greater cost of equity capital in the post-SFAS166/167 period.

Suggested Citation

  • Qiuhong Zhao & Dana A. Forgione, 2021. "The Association Of Sfas 166/167 And Cost Of Equity Capital: Evidence From Banks," Journal of Financial Management, Markets and Institutions (JFMMI), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-32, June.
    • Handle: RePEc:wsi:jfmmix:v:09:y:2021:i:01:n:s2282717x21500018
    DOI: 10.1142/S2282717X21500018
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S2282717X21500018
    Download Restriction: Open Access
    File URL: https://libkey.io/10.1142/S2282717X21500018?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:jfmmix:v:09:y:2021:i:01:n:s2282717x21500018. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: https://www.worldscientific.com/worldscinet/jfmmi .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.