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Leverage, performance and capital adequacy ratio in Taiwan's banking industry

Listed author(s):
  • Ho, Shirley J.
  • Hsu, Su-Chu

We examine the relation between firms' financial structures and their risky investment strategies in Taiwan's banking industry. Regressions cover two subperiods: before the first financial reform (1996-2000) and after the first financial reform (2001-2006), to address the impacts of the first financial reform on banking firms' financial structures. Our first result demonstrates that the restrictions on CAR have indeed affected firms' risky investment strategies, as market share and leverage are positively related. Second, the firm performance is significantly and positively related to firm size, leverage and financial cost. Finally, the regression results show that financial structures for banking firms are positively related to the states of business cycle (i.e., cyclical). The positive signs coincide with Proposition 4 in our analytical model.

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File URL: http://www.sciencedirect.com/science/article/pii/S0922-1425(10)00037-X
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Article provided by Elsevier in its journal Japan and the World Economy.

Volume (Year): 22 (2010)
Issue (Month): 4 (December)
Pages: 264-272

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Handle: RePEc:eee:japwor:v:22:y:2010:i:4:p:264-272
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505557

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  1. Showalter, Dean M, 1995. "Oligopoly and Financial Structure: Comment," American Economic Review, American Economic Association, vol. 85(3), pages 647-653, June.
  2. Smith, Clifford Jr. & Watts, Ross L., 1992. "The investment opportunity set and corporate financing, dividend, and compensation policies," Journal of Financial Economics, Elsevier, vol. 32(3), pages 263-292, December.
  3. Christine Greenhalgh & Mark Rogers, 2006. "Trade Marks and Market Value in UK Firms," Melbourne Institute Working Paper Series wp2006n04, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  4. Campello, Murillo, 2003. "Capital structure and product markets interactions: evidence from business cycles," Journal of Financial Economics, Elsevier, vol. 68(3), pages 353-378, June.
  5. Wanzenried, Gabrielle, 2003. "Capital structure decisions and output market competition under demand uncertainty," International Journal of Industrial Organization, Elsevier, vol. 21(2), pages 171-200, February.
  6. Sealey, C W, Jr, 1983. " Valuation, Capital Structure, and Shareholder Unanimity for Depository Financial Intermediaries," Journal of Finance, American Finance Association, vol. 38(3), pages 857-871, June.
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