Costs of Bank Equity Offerings in Response to Strengthened Capital Regulation

38 Pages Posted: 16 Feb 2015

See all articles by Katsutoshi Shimizu

Katsutoshi Shimizu

Nagoya University

Peng Xu

Hosei University - Institute of Comparative Economic Studies (ICES)

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Date Written: June 2, 2014

Abstract

This paper investigates the determinants of new equity offerings and estimates its costs in sample selection model. The main finding is that a weak capital base is one of the key driving forces of the new issuance around the recently strengthened Basel regulations, although banks were not capital deficient relative to the current regulatory minimum. In sharp contrast to earlier studies, our empirical analysis provides supportive evidence for our penalty-aversion hypothesis. Bank equity offerings in response to strengthened regulations convey negative information on the future capital shortfall or associated costs of interventions. Furthermore, we find that the effect of new issues on the asset contraction is insignificant, supporting the penalty-aversion hypothesis.

Keywords: Basel capital regulations, seasoned equity offer, announcement return, recapitalization, tier1 ratio

JEL Classification: G21; G28; G18; G14; G32

Suggested Citation

Shimizu, Katsutoshi and Xu, Peng, Costs of Bank Equity Offerings in Response to Strengthened Capital Regulation (June 2, 2014). Available at SSRN: https://ssrn.com/abstract=2565278 or http://dx.doi.org/10.2139/ssrn.2565278

Katsutoshi Shimizu

Nagoya University ( email )

Furo-cho, Chikusa-ku
Nagoya-City, 4648601
Japan

Peng Xu (Contact Author)

Hosei University - Institute of Comparative Economic Studies (ICES) ( email )

4342 Aihara-cho
Building No.3
Tokyo, 194-0298
Japan
+81-42-783-2330 (Phone)

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