Please use this identifier to cite or link to this item:
https://hdl.handle.net/2440/81321
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Type: | Journal article |
Title: | Book-to-market equity, asset correlations and the basel capital requirement |
Author: | Lee, S. Lin, C. Yu, M. |
Citation: | Journal of Business Finance and Accounting, 2013; 40(7-8):991-1008 |
Publisher: | Wiley-Blackwell Publishing Ltd |
Issue Date: | 2013 |
ISSN: | 0306-686X 1468-5957 |
Statement of Responsibility: | Shih-Cheng Lee, Chien-Ting Lin and Min-Teh Yu |
Abstract: | <jats:title>Abstract</jats:title><jats:p>This paper examines the effect of book‐to‐market equity (BE/ME) on asset correlations under the Basel capital requirement. We find that BE/ME captures variations in asset correlations after controlling for firm size, default probability and industry effects from 1987 to 2011. Obligors with higher BE/ME exhibit lower asset correlations compared to those with lower BE/ME. Decomposing BE/ME into assets‐in‐place and growth options based on the asset pricing literature shows that obligors with more assets‐in‐place or more fixed assets have higher BE/ME and lower asset correlations than those with more growth options. Overall, our findings suggest that BE/ME is an additional important factor that may improve the estimates of asset correlations and thereby banks’ capital adequacy.</jats:p> |
Keywords: | bank capital requirement asset correlation book-to-market equity firm size default probability |
Rights: | © 2013 John Wiley & Sons Ltd. |
DOI: | 10.1111/jbfa.12029 |
Published version: | http://dx.doi.org/10.1111/jbfa.12029 |
Appears in Collections: | Aurora harvest Business School publications |
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RA_hdl_81321.pdf Restricted Access | Restricted Access | 170.48 kB | Adobe PDF | View/Open |
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