Work

What Explains the Difference in Leverage between Banks and Nonbanks?

Year: 2017

Type: article

Abstract: Banks have much more leverage than nonbanks. In this article, we use a joint sample of banks and nonbanks between 1965 and 2013 to analyze the determinants of this leverage difference. We find that a single factor, asset risk, is able to explain up to 90% of this difference. Banks’ assets consist of a diversified portfolio of nonbank debt. Therefore, banks have much lower asset risk than do nonbanks. Because asset risk is a major determinant of capital structure choice, this factor is able to explain a large fraction of the difference between bank and nonbank leverage.

Source: Journal of Financial and Quantitative Analysis

DOI: 10.1017/s0022109017000734

Authors: Tobias Berg, Jasmin Gider

Institutions: Frankfurt School of Finance & Management, Tilburg University

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W2291857097

FWCI: 9.093

Cites: 30

Cited by: 55

Related to: 10