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Wealth effects of bank holding company securities issuance and loan growth under the risk-based capital requirements

  • Elizabeth S. Laderman

This paper tests a two-part hypothesis: first, that during the period between publication of the risk-based capital requirements in early 1989 and the end of 1992, bank holding companies (BHCs) faced a statistically significant decrease in stock returns if they issued new common stock; second, that this discouraged new common stock issuance and therefore, in effect, forced BHCs with Tier 1 and/or leverage capital-to-assets ratios below the regulatory minima to decrease loans outstanding more than did BHCs deficient only in their total capital ratios. Empirical evidence supporting both parts of the hypothesis is presented.

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File URL: http://www.frbsf.org/publications/economics/review/1994/94-2_30-41.pdf
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Article provided by Federal Reserve Bank of San Francisco in its journal Economic Review.

Volume (Year): (1994)
Issue (Month): ()
Pages: 30-41

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Handle: RePEc:fip:fedfer:y:1994:p:30-41:n:2
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  1. Smith, Clifford Jr., 1986. "Investment banking and the capital acquisition process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 3-29.
  2. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-51, September.
  3. Wansley, James W & Dhillon, Upinder S, 1989. "Determinants of Valuation Effects for Security Offerings of Commercial Bank Holding Companies," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(3), pages 217-33, Fall.
  4. James W. Wansley & Upinder S. Dhillon, 1989. "Determinants Of Valuation Effects For Security Offerings Of Commercial Bank Holding Companies," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 12(3), pages 217-233, 09.
  5. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  6. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  7. Fred Furlong, 1993. "Adequate's not good enough," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep22.
  8. Mikkelson, Wayne H. & Partch, M. Megan, 1986. "Valuation effects of security offerings and the issuance process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 31-60.
  9. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  10. Larry D. Wall, 1989. "Valuation effects of new capital issues by large bank holding companies," Proceedings 231, Federal Reserve Bank of Chicago.
  11. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
  12. Michael C. Keeley, 1989. "The stock price effects of bank holding company securities issuance," Economic Review, Federal Reserve Bank of San Francisco, issue Win, pages 3-19.
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