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Hidden effects of bank recapitalizations

Beccalli, Elena and Frantz, Pascal and Lenoci, Francesca (2018) Hidden effects of bank recapitalizations. Journal of Banking and Finance. ISSN 0378-4266

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Identification Number: 10.1016/j.jbankfin.2018.07.001

Abstract

Given the importance of capital regulation in the banking industry, how and why a bank's behavior reacts to a recapitalization has profound consequences. To this end, we investigate the effects of 306 seasoned equity offerings (SEOs) conducted by listed European banks between 2002 and 2014. We use propensity score matching and find that SEOs lead to asset expansion as opposed to any deleveraging. Further, we find a decrease in lending in the short-term followed by a subsequent increase, a reduction in profitability, and an increase in systemic risk. Regulators might not have fully considered this last negative externality when they imposed the tougher Basel III capital requirements. The effects of SEOs strongly depend on the reasons behind the recapitalizations.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/journal-of-b...
Additional Information: © 2018 Elsevier B.V.
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
Sets: Departments > Accounting
Date Deposited: 16 Jul 2018 11:47
Last Modified: 02 Aug 2018 12:36
URI: http://eprints.lse.ac.uk/id/eprint/89252

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