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Capital regulation and bank balance sheet adjustments: a simultaneous approach
Author(s) -
Nguyen Quang Thi Thieu,
Gan Christopher,
Li Zhaohua
Publication year - 2020
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12488
Subject(s) - balance sheet , capital requirement , simultaneity , capital (architecture) , economics , capital adequacy ratio , monetary economics , off balance sheet , earnings , balance (ability) , business , financial system , finance , market economy , incentive , medicine , physics , archaeology , classical mechanics , physical medicine and rehabilitation , history
This study examines the balance sheets of banks in 15 Asian countries from 2004 to 2016 to explore how they respond to stricter capital regulation. We consider the simultaneity of balance sheet adjustments. Employing a normalisation method, the study found that Asian banks increased regulatory capital, primarily through retained earnings, and expanded assets over the study period. However, the two‐step system Generalised Method of Moments results do not support the positive effect of capital regulation on regulatory capital components adjustments. In addition, stricter capital regulation even induces banks to reduce lending.