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- Publisher
- Springer Journals
- Copyright
- Copyright © The Author(s), under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2023. Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
- ISSN
- 0920-8550
- eISSN
- 1573-0735
- DOI
- 10.1007/s10693-023-00400-y
- Publisher site
- See Article on Publisher Site
Abstract
We provide new estimates of the association between the level of capital and the cost of capital for US banks by using the implied cost of capital as a measure of the cost of equity and by factoring in the effect of the cost of debt. With the important exception of the largest banks, we find that the cost of equity declines when the level of capital increases. This negative association is stronger after the onset of the 2007–2008 financial crisis. Banks’ cost of debt also declines when the level of capital increases. However, the weighted average cost of capital (WACC) remains unaltered when capital increases. The analysis of a sample of large banks yields different results: there is no discernible association between the level of capital and the costs of equity and debt for large banks, and their WACC increases with the level of capital.
Journal
Journal of Financial Services Research – Springer Journals
Published: Dec 1, 2023
Keywords: Bank capital; Cost of capital; Implied cost of capital; Bank regulation; G28; G21; G01