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

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  • Elizabeth S. Laderman

Abstract

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.

Suggested Citation

  • Elizabeth S. Laderman, 1994. "Wealth effects of bank holding company securities issuance and loan growth under the risk-based capital requirements," Economic Review, Federal Reserve Bank of San Francisco, pages 30-41.
  • Handle: RePEc:fip:fedfer:y:1994:p:30-41:n:2
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    References listed on IDEAS

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    1. Miller, Merton H & Rock, Kevin, 1985. " Dividend Policy under Asymmetric Information," Journal of Finance, American Finance Association, vol. 40(4), pages 1031-1051, September.
    2. 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.
    3. 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.
    4. 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.
    5. 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, September.
    6. 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 217-233, Fall.
    7. Larry D. Wall & Pamela P. Peterson, 1988. "Valuation effects of new capital issues by large bank holding companies," FRB Atlanta Working Paper 88-7, Federal Reserve Bank of Atlanta.
    8. 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.
    9. 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.
    10. Smith, Clifford Jr., 1986. "Investment banking and the capital acquisition process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 3-29.
    11. Frederick T. Furlong, 1993. "Adequate's not good enough," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue sep22.
    12. Asquith, Paul & Mullins, David Jr., 1986. "Equity issues and offering dilution," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 61-89.
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    Citations

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    Cited by:

    1. Elizabeth Laderman, 1994. "Risk-based capital requirements and loan growth," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue oct14.
    2. Jokipii, Terhi & Milne, Alistair, 2011. "Bank capital buffer and risk adjustment decisions," Journal of Financial Stability, Elsevier, vol. 7(3), pages 165-178, August.
    3. Stolz, Stéphanie, 2002. "The Relationship between Bank Capital, Risk-Taking, and Capital Regulation: A Review of the Literature," Kiel Working Papers 1105, Kiel Institute for the World Economy (IfW).
    4. Jacques, Kevin & Nigro, Peter, 1997. "Risk-based capital, portfolio risk, and bank capital: A simultaneous equations approach," Journal of Economics and Business, Elsevier, vol. 49(6), pages 533-547.
    5. Laetitia Lepetit & Amine Tarazi & Nadia Zedek, 2012. "Bank Regulatory Capital Adjustment and Ultimate Ownership Structure: Evidence from European Commercial Banks," Working Papers hal-00918577, HAL.
    6. Laetitia Lepetit & Amine Tarazi & Nadia Zedek, 2012. "Ultimate Ownership Structure and Bank Regulatory Capital Adjustment: Evidence from European Commercial Banks," Working Papers hal-00918579, HAL.

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