How Does Post-Crisis Bank Capital Adequacy Affect Firm Investment?
IMF Working Papers, June 30, 2015
Source details
- Canonical URL
- How Does Post-Crisis Bank Capital Adequacy Affect Firm Investment?
Other formats
Bibliographic details
- Authors: Yangfan Sun, Hui Tong
- Published: June 30, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513593593.001
Summary of study and sample
- Objective: Examine the effect of bank capital levels on firm investment.
- Sample: 11,106 non-financial firms.
- Period: 2007 to 2013.
- Coverage: 16 advanced economies.
- Bank capital measures analyzed: Tier 1 ratio and a simple leverage ratio.
Key empirical findings
- Firms with larger external financial needs invest relatively more when domestic financial systems have relatively high leverage ratios.
- The positive association between high bank leverage ratios and firm investment is more pronounced for firms that have sound fundamentals.
- Bank Tier 1 capital ratio does not appear to have a significant effect on corporate investment.
- Possible explanation offered: a higher Tier 1 ratio may also capture a high share of assets with low risk weights.
- The empirical findings are robust to a range of specifications.
Interpretations and implications
- Bank balance sheets and banks’ willingness to extend credit can be an important factor in determining aggregate investment and growth outcomes.
- Differences in the predictive power of leverage ratio versus Tier 1 ratio suggest that the choice of capital adequacy metric matters for assessing credit supply effects on investment.
Subject areas and keywords (as reported)
- Subjects: Bank credit; Banking; Capital adequacy requirements; Commercial banks; Financial crises; Financial institutions; Financial regulation and supervision; Loans; Money; Nonperforming loans.
- Keywords: bank; Bank Capital Adequacy; Bank credit; bank Tier 1 capital ratio; Capital adequacy requirements; capital ratio; capital requirements; financial system index; Firm Investment; Global; lending decision; leverage ratio; Loans; Nonperforming loans; Tier 1; WP.
Publication metadata (from the page)
- Authors: Yangfan Sun, Hui Tong.
- Date: June 30, 2015.
- Series: IMF Working Papers.
- Issue/Working Paper No.: 2015/145.
- Pages: 26.
- DOI: https://doi.org/10.5089/9781513593593.001.
- ISBN: 9781513593593.
- ISSN: 1018-5941.
Source: IMF Working Paper "How Does Post-Crisis Bank Capital Adequacy Affect Firm Investment?" by Yangfan Sun and Hui Tong (June 30, 2015).