Bank Stock Returns, Leverage and the Business Cycle
15 Pages Posted: 12 Sep 2012
Abstract
The returns on bank stocks rise and fall with the business cycle, making bank equity financing cheaper in the boom and dearer during a recession. This provides support for prudential tools that give incentives for banks to build capital buffers at times when the cost of equity is lower. In addition, banks with higher leverage face a higher cost of equity, which suggests that higher capital ratios are associated with lower funding costs.
JEL Classification: G3, G21, G28
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Mitigating the Procyclicality of Basel II
By Rafael Repullo, Jesus Saurina Salas, ...
-
Mitigating the Pro-Cyclicality of Basel II
By Rafael Repullo, Jesus Saurina Salas, ...
-
Financial Sector Pro-Cyclicality: Lessons from the Crisis
By Fabio Panetta, Paolo Angelini, ...
-
The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?
-
The Effects of Bank Capital on Lending: What Do We Know, and What Does it Mean?
-
The Procyclical Effects of Bank Capital Regulation
By Rafael Repullo and Javier Suarez
-
The Procyclical Effects of Bank Capital Regulation
By Rafael Repullo and Javier Suarez
-
The Countercyclical Capital Buffer of Basel III: A Critical Assessment
-
Earnings and Capital Management in Alternative Loan Loss Provision Regulatory Regimes
By Jesus Saurina Salas, Daniel Perez, ...