Bank Leverage and Profitability: Evidence from a Sample of International Banks

Posted: 29 Nov 2015 Last revised: 9 Dec 2015

See all articles by Andrea Beltratti

Andrea Beltratti

Bocconi University - Department of Finance

Giovanna Paladino

IntesaSanpaolo; LUISS Economics Department

Date Written: November 28, 2015

Abstract

We examine the relationship between leverage and residual income for a sample of international banks using an unbalanced panel over the period 2005-2011. Our GMM-based econometric model considers both bank-level and country-level variables to control for several other factors aside from equity capital and allows for endogeneity and unobservable heterogeneity. We document a significant positive non-monotonic link between the capital ratio and residual income for the international banking industry. These results are robust to a number of different model specifications.

Keywords: Implied cost of capital; residual income capital structure; Dynamic system GMM; Banking Industry

JEL Classification: G18; G21; C23

Suggested Citation

Beltratti, Andrea and Paladino, Giovanna, Bank Leverage and Profitability: Evidence from a Sample of International Banks (November 28, 2015). Review of Financial Economics, Vol. 27, pp. 46-57, November 2015. Available at SSRN: https://ssrn.com/abstract=2696390

Andrea Beltratti

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

Giovanna Paladino (Contact Author)

IntesaSanpaolo ( email )

Piazza San Carlo
Torino, 10121
Italy

LUISS Economics Department ( email )

Viale di Villa Massimo, 57
Rome, 00161
Italy

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