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Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms
Author(s) -
KANE EDWARD J.,
UNAL HALUK
Publication year - 1990
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1990.tb05083.x
Subject(s) - balance sheet , valuation (finance) , economics , econometrics , market value , stock market , sample (material) , index (typography) , financial economics , residual income valuation , monetary economics , finance , geography , context (archaeology) , chemistry , archaeology , chromatography , world wide web , computer science , equity risk
Hidden capital exists whenever the accounting measure of a firm's net worth diverges from its economic value. Such unbooked capital has on‐balance‐sheet and off‐balance‐sheet sources. This paper develops a model to estimate both forms of hidden capital and to test hypotheses about their determinants. In effect, the analysis expands the two‐index model by endogenizing the market and interest‐rate sensitivities of any stock and decomposing each sensitivity into on‐balance‐sheet and off‐balance‐sheet elements. For a sample of banks during 1975–1985, the model finds considerable variation in both forms of hidden capital.