Bank Capital Structure: An Analysis of the Charter Value Hypothesis

Posted: 24 Feb 1995

See all articles by Anthony Saunders

Anthony Saunders

New York University - Leonard N. Stern School of Business

Berry K. Wilson

Pace University - Department of Finance and Economics

Abstract

Recent profitability and recapitalization trends in the banking industry appear to be consistent with a hypothesis advanced by Keeley (1990) termed the "charter value" hypothesis. Under this hypothesis banks with greater charter value voluntarily hold higher capital ratios to self-insure against its loss under regulatory enforced closure. This paper utilizes a one hundred year history of individual bank market and accounting data to test the hypothesis. Our results indicate that, while there is empirical support for the hypothesis in some sub-periods, we do not find that the charter value hypothesis holds over the full one hundred years of the study.

JEL Classification: G21

Suggested Citation

Saunders, Anthony and Wilson, Berry K., Bank Capital Structure: An Analysis of the Charter Value Hypothesis. Available at SSRN: https://ssrn.com/abstract=5899

Anthony Saunders (Contact Author)

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Berry K. Wilson

Pace University - Department of Finance and Economics ( email )

Lubin School of Business
New York, NY 10038
United States

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