The Role of Bank Capital in Bank Loan Growth: Can the Market Tell Us Anything That Accountants Don't?

The influence of bank holding company capital on loan growth is examined. It is found that the book value of a bank holding company's capital-to-asset ratio has a positive relationship with loan growth. In addition, a measure of the market value of capital is included in an effort to improve th...

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Bibliographic Details
Published in:Financial industry studies (Dallas, Tex.) Tex.), 1992-12, p.11
Main Author: Moore, Robert R
Format: Article
Language:English
Subjects:
Accounting
Bank assets
Bank Capital
Bank holding companies
Bank loans
Book value
Economic activity
Economic conditions
Financial ratios
Market value
Ratios
Statistical data
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Summary:The influence of bank holding company capital on loan growth is examined. It is found that the book value of a bank holding company's capital-to-asset ratio has a positive relationship with loan growth. In addition, a measure of the market value of capital is included in an effort to improve the measurement of the value of a bank holding company's capital. If an accounting system inaccurately measures the true value of bank capital and if the market is able to see through the veil of accounting, then the market's valuation of a bank will contain information about the holding company's value not reflected in the accounting valuation. It is found that the market value of a bank holding company's capital-to-asset ratio also has a positive relationship with loan growth. These results are consistent with the view that a bank holding company's market value reflects information about its value that is not captured in accounting measures.
ISSN:1526-4076