Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms
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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Volume (Year): 45 (1990)
Issue (Month): 1 (March)
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- Flannery, Mark J & James, Christopher M, 1984. " The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-53, September.
- Edward J. Kane, 1985. "The Gathering Crisis in Federal Deposit Insurance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611856, June.
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