Internal Capital Markets and Bank Holding Company Efficiency

Posted: 22 Feb 2018

See all articles by Karl Weinmayer

Karl Weinmayer

Modul University Vienna - Department of International Management; Vienna University of Economics and Business - Institute for Finance, Banking and Insurance

Margarethe Rammerstorfer

Vienna University of Economics and Business - Department of Corporate Finance

Silvia Bressan

Free University of Bozen-Bolzano - Faculty of Economics and Management

Date Written: January 13, 2018

Abstract

Bank holding companies and its internal capital market have been widely discussed in recent financial literature and especially since the financial crisis which posed the question for regulatory intervention in the financial markets anew. From an economic point of view, the source of financing should not affect the overall firm value or future performance, but empirical evidence suggests that bank holding companies have clear preferences on double leveraging. In this paper, we show the direct effects of equity, debt and double leverage on the firms performance measured by their overall effciency. We show that efficiency is negatively affected by equity financing from parent to subsidiaries and this effect is even more pronounced for the case of double leverage. Our findings indicate that further emphasis from regulators is necessary in order to prevent inefficient fiancing via double leverage, which could be used to circumvent regulatory capital requirements.

Keywords: Double Leverage, Bank Holding Companies, Subsidiary, Data Envelopment Analysis

JEL Classification: G21, G32

Suggested Citation

Weinmayer, Karl and Rammerstorfer, Margarethe and Bressan, Silvia, Internal Capital Markets and Bank Holding Company Efficiency (January 13, 2018). Available at SSRN: https://ssrn.com/abstract=3123640 or http://dx.doi.org/10.2139/ssrn.3123640

Karl Weinmayer (Contact Author)

Modul University Vienna - Department of International Management ( email )

Am Kahlenberg 1
Vienna, 1190
Austria
+43-1-3203555-653 (Phone)

Vienna University of Economics and Business - Institute for Finance, Banking and Insurance ( email )

Welthandelsplatz 1
Building D4, 4th floor
Vienna, 1020
Austria

Margarethe Rammerstorfer

Vienna University of Economics and Business - Department of Corporate Finance ( email )

Welthandelsplatz 1
1020 Vienna
Austria

Silvia Bressan

Free University of Bozen-Bolzano - Faculty of Economics and Management ( email )

Universitaetsplatz
39100 Bozen-Bolzano (BZ), Bozen 39100
Italy

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