Essays in bank capital structure

Wang, Senyu (2019) Essays in bank capital structure. PhD thesis, University of Glasgow.

Abstract

This thesis provides an in-depth discussion on banks’ capital structure which has drawn very little attention from the literature. It consists of three major empirical essays. The first essay (Chapter III) reviews the major conclusions drawn from the traditional corporate finance literature that has at length examined the capital structures of non-financial firms, while compares their findings with the limited work on the leverage decisions of banking firms. It aims to provide an insight into the factors that actually govern banks’ capital choices, cast doubt on whether capital requirements are binding and primarily decide the bank leverage, and introduce the core assumption of this thesis – information asymmetry as an important determinant of capital structure decisions. The second essay (Chapter IV) empirically investigates the effects of information asymmetry on capital structure adjustments of US bank holding companies (BHCs) during 1986 to 2015. By identifying BHCs with bankrupt subsidiaries and arguing that their managers possess better knowledge than market investors concerning the failure of their subsidiaries, this chapter disentangles the real effect of private information on the capital structures of holding banks. The results show that subsidiary failure significantly affects financial policies of the parent companies. Specifically, BHCs increase leverage as early as one year prior to the failure of their subsidiaries, and substantially lower leverage after subsidiary failure. Further tests document that the parent BHCs increase not only debt borrowing but also liquidity assets, and curtail lending in advance to avoid further liquidity and financial constraint problems after their subsidiary failure. Examinations on the dynamic patterns of these BHCs’ performance around the subsidiary failure time confirm a smoother performance transition. The third essay (Chapter V) adds to the evidence in Chapter IV and discusses the information asymmetry effect by identifying a different treatment group - BHCs with subsidiaries engaging in M&A activities. The findings lend further support to the core assumption in this thesis. The chapter also finds the indication that financial constraints of BHCs are on average mitigated following their subsidiaries receiving capital infusion following the M&A deals. Overall, this thesis has important implications for the public to understand various incentives that banks may have in making their capital structure decisions.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Keywords: Capital structure, subsidiary failure, M&A, information asymmetry.
• Subjects: H Social Sciences > H Social Sciences (General); H Social Sciences > HG Finance
• Colleges/Schools: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Supervisor's Name: Liu, Prof. Hong and Hung, Dr. Chi-Hsiou
• Date of Award: 2019
• Depositing User: Mr Senyu Wang
• Unique ID: glathesis:2019-40939
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 24 Jan 2019 13:05
• Last Modified: 10 Aug 2022 10:04
• Thesis DOI: 10.5525/gla.thesis.40939
• URI: https://theses.gla.ac.uk/id/eprint/40939