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Effects of Risk-Based Capital Requirements and Asymmetric Information on Banks' Portfolio Decisions

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  • Park, Sangkyun

Abstract

This paper examines if asymmetric information about earnings prospects caused low-capital banks to reduce assets rather than raise capital between 1989 and 1992, the transition period from the leverage ratio to the risk-based capital requirement. The measure of asymmetric information here is the residual of an earnings prediction model based on publicly available information. If managers are significantly better informed than outside investors, a large residual indicates that inside information is more favorable and that the bank's stock is undervalued. The empirical results show an insignificant effect of asymmetric information on banks' portfolio decisions. Copyright 1999 by Kluwer Academic Publishers

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  • Park, Sangkyun, 1999. "Effects of Risk-Based Capital Requirements and Asymmetric Information on Banks' Portfolio Decisions," Journal of Regulatory Economics, Springer, vol. 16(2), pages 135-150, September.
    • Handle: RePEc:kap:regeco:v:16:y:1999:i:2:p:135-50
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    Cited by:

    1. Crouzille, Celine & Lepetit, Laetitia & Tarazi, Amine, 2004. "Bank stock volatility, news and asymmetric information in banking: an empirical investigation," Journal of Multinational Financial Management, Elsevier, vol. 14(4-5), pages 443-461.
    2. Marco Belloni & Maciej Grodzicki & Mariusz Jarmuzek, 2024. "Why European banks adjust their dividend payouts?," Journal of Banking Regulation, Palgrave Macmillan, vol. 25(3), pages 284-304, September.
    3. Mies, Michael, 2024. "Bank opacity, systemic risk and financial stability," Journal of Financial Stability, Elsevier, vol. 70(C).
    4. Laetitia Lepetit & Céline Meslier-Crouzille & Leo Indra Wardhana, 2015. "Do Asymmetric Information and Ownership Structure Matter for Dividend Payout Decisions? Evidence from European Banks," Working Papers hal-01186722, HAL.

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