Bank Regulatory Capital Adjustment and Ultimate Ownership Structure: Evidence from European Commercial Banks

50 Pages Posted: 10 Jun 2012

See all articles by Nadia Zedek

Nadia Zedek

Universite de Limoges, LAPE

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Amine Tarazi

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE); University of Limoges - Faculty of Law and Economic Science; Economic Research Forum (ERF)

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Date Written: May 24, 2012

Abstract

We empirically investigate whether a bank’s decision to recapitalize is influenced by the separation between voting and cash-flow rights of the ultimate owner. We use a novel dataset on bank ultimate control and ownership structure of 442 European commercial banks to estimate an ownership-augmented capital adjustment model. We find that when the ultimate owner’s rights are identical, banks actively and equally adjust their capital upwards (i.e. raise equity) and downwards (i.e. repurchase equity) to reach their target. However, a gap between both rights makes banks reluctant to actively adjust their capital position upwards, presumably because they fear control dilution. Further investigation shows that such a behavior is more pronounced if the ultimate owner is a family or a state, or if the bank is headquartered in a country with weak shareholder protection. Our findings have several policy implications on the road to the final stage of Basel III in 2019.

Keywords: Ownership structure, pyramids, regulatory bank capital, European banking, adjustment speed, voting rights, cash-flow rights

JEL Classification: G21, G28, G32

Suggested Citation

Zedek, Nadia and Lepetit, Laetitia and Tarazi, Amine, Bank Regulatory Capital Adjustment and Ultimate Ownership Structure: Evidence from European Commercial Banks (May 24, 2012). Available at SSRN: https://ssrn.com/abstract=2080459 or http://dx.doi.org/10.2139/ssrn.2080459

Nadia Zedek (Contact Author)

Universite de Limoges, LAPE ( email )

rue François Mitterrand
Limoges Cedex, FL Limoges 87031
France

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Felix Eboue
BP 3127
Limoges Cedex 1, 87031
France
+33555149213 (Phone)

HOME PAGE: http://www.unilim.fr/lape/

Amine Tarazi

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Félix Eboué
BP 3127
Limoges Cedex 1, 87031
France

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

Economic Research Forum (ERF) ( email )

21 Al-Sad Al-Aaly St.
(P.O. Box: 12311)
Dokki, Cairo
Egypt

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