Risk Management, Capital Structure and Capital Budgeting in Financial Institutions

32 Pages Posted: 11 Nov 2008

See all articles by A. Sinan Cebenoyan

A. Sinan Cebenoyan

New York University (NYU) - Department of Finance; Hofstra University - Frank G. Zarb School of Business

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: September 2000

Abstract

We test how active management of bank credit risk exposure affects capital structure, capital budgeting and profits. We find that banks that rebalance their C&I loan portfolio exposures by both buying and selling loans hold less capital and lower levels of liquid assets than other banks; they also lend more to businesses, both as a percentage of total assets and as a percentage of their overall lending, and they enjoy higher profits. The results hold controlling for bank size and holding company affiliation and are robust over time. We conclude that increasingly sophisticated risk management practices in banking are likely to improve the availability of bank credit.

Suggested Citation

Cebenoyan, Ahmet Sinan and Strahan, Philip E., Risk Management, Capital Structure and Capital Budgeting in Financial Institutions (September 2000). NYU Working Paper No. S-FI-00-05, Available at SSRN: https://ssrn.com/abstract=1298865

Ahmet Sinan Cebenoyan (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Hofstra University - Frank G. Zarb School of Business ( email )

Dept. of Finance
Hempstead, NY 11549
United States
516-463-5702 (Phone)

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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