Do Banks Issue Equity When They Are Poorly Capitalized?

Dinger, Valeriya; Vallascas, Francesco

doi:10.1017/s0022109016000545

Do Banks Issue Equity When They Are Poorly Capitalized?

Dinger, Valeriya; Vallascas, Francesco

Authors

Valeriya Dinger

Professor Francesco Vallascas francesco.vallascas@durham.ac.uk
Professor

Abstract

Debt overhang and moral hazard predict that poorly capitalized banks have a lower likelihood to issue equity, while the presence of regulatory and market pressures posits an opposite theoretical prediction. By using an international sample of bank seasoned equity offerings (SEOs), we show that the likelihood of issuing SEOs is higher in poorly capitalized banks and that such banks prefer SEOs to alternative capitalization strategies. A series of tests exploring the variation of capital regulation and market discipline show that market mechanisms rather than capital regulation are the primary driver of the decision to issue by poorly capitalized banks.

Citation

Dinger, V., & Vallascas, F. (2016). Do Banks Issue Equity When They Are Poorly Capitalized?. Journal of Financial and Quantitative Analysis, 51(5), 1575-1609. https://doi.org/10.1017/s0022109016000545

Journal Article Type	Article
Online Publication Date	Dec 16, 2016
Publication Date	2016-10
Deposit Date	Jul 28, 2020
Publicly Available Date	Jul 28, 2020
Journal	Journal of Financial and Quantitative Analysis
Print ISSN	0022-1090
Electronic ISSN	1756-6916
Publisher	Cambridge University Press
Peer Reviewed	Peer Reviewed
Volume	51
Issue	5
Pages	1575-1609
DOI	https://doi.org/10.1017/s0022109016000545
Public URL	https://durham-repository.worktribe.com/output/1295912
Related Public URLs	http://eprints.whiterose.ac.uk/97748/

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Copyright Statement
This article has been published in a revised form in Journal of financial and quantitative analysis http://doi.org/10.1017/S0022109016000545. This version is published under a Creative Commons CC-BY-NC-ND. No commercial re-distribution or re-use allowed. Derivative works cannot be distributed. © Michael G. Foster School of Business, University of Washington 2016.