Bank Capital Structure, Regulatory Capital and Securities' Innovations

EFA 2001 Barcelona Meetings; FRB Atlanta Working Paper Series

40 Pages Posted: 4 Oct 2000

See all articles by Paul J. Irvine

Paul J. Irvine

Neeley School of Business

George J. Benston

Emory University - Department of Accounting

Jim Rosenfeld

Emory University - Department of Finance

Joseph F. Sinkey

Terry College of Business, The University of Georgia

Date Written: October 1, 2000

Abstract

Bank Capital Structure, Regulatory Capital, and Securities' Innovations Abstract Although financial instruments that, in effect, permit corporations to treat preferred stock dividends as tax-deductible interest have been used by nonfinancial corporations since late 1993, bank holding companies (BHCs) did not issue these trust preferred securities (TPS) until 1996, when the Federal Reserve qualified them as Tier-1 capital. We delineate and test hypotheses with: 1) analyses of the stock-market reaction to the Fed's ruling and to TPS filings, and 2) comparisons of BHCs that issued TPS with those that did not. We conclude that regulatory capital requirements, tax savings, and uninsured sources of funds can have significant positive effects on BHCs' demand for capital; growth and investment opportunities have an inconclusive effect; and transaction costs have a negative effect. Our results are not consistent with the moral-hazard hypothesis.

JEL Classification: E5, G2, L1, L5

Suggested Citation

Irvine, Paul J. and Benston, George J. and Rosenfeld, James and Sinkey, Joseph F., Bank Capital Structure, Regulatory Capital and Securities' Innovations (October 1, 2000). EFA 2001 Barcelona Meetings; FRB Atlanta Working Paper Series. Available at SSRN: https://ssrn.com/abstract=240645 or http://dx.doi.org/10.2139/ssrn.240645

Paul J. Irvine (Contact Author)

Neeley School of Business ( email )

Fort Worth, TX 76129
United States

George J. Benston

Emory University - Department of Accounting ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
404-727-7831 (Phone)
404-727-5238 (Fax)

James Rosenfeld

Emory University - Department of Finance ( email )

Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322-2710
United States

Joseph F. Sinkey

Terry College of Business, The University of Georgia ( email )

205 St. George Drive
Athens, GA GEORGIA 30606-3907
United States
7064103395 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
490
Abstract Views
3,191
rank
56,453
PlumX Metrics