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Do Banks Issue Equity When They Are Poorly Capitalized?

Dinger, Valeriya; Vallascas, Francesco

Do Banks Issue Equity When They Are Poorly Capitalized? Thumbnail


Valeriya Dinger


Debt overhang and moral hazard predict that poorly capitalized banks have a lower likelihood to issue equity, while the presence of regulatory and market pressures posits an opposite theoretical prediction. By using an international sample of bank seasoned equity offerings (SEOs), we show that the likelihood of issuing SEOs is higher in poorly capitalized banks and that such banks prefer SEOs to alternative capitalization strategies. A series of tests exploring the variation of capital regulation and market discipline show that market mechanisms rather than capital regulation are the primary driver of the decision to issue by poorly capitalized banks.


Dinger, V., & Vallascas, F. (2016). Do Banks Issue Equity When They Are Poorly Capitalized?. Journal of Financial and Quantitative Analysis, 51(5), 1575-1609.

Journal Article Type Article
Online Publication Date Dec 16, 2016
Publication Date 2016-10
Deposit Date Jul 28, 2020
Publicly Available Date Jul 28, 2020
Journal Journal of Financial and Quantitative Analysis
Print ISSN 0022-1090
Electronic ISSN 1756-6916
Publisher Cambridge University Press
Peer Reviewed Peer Reviewed
Volume 51
Issue 5
Pages 1575-1609
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Accepted Journal Article (993 Kb)

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Copyright Statement
This article has been published in a revised form in Journal of financial and quantitative analysis This version is published under a Creative Commons CC-BY-NC-ND. No commercial re-distribution or re-use allowed. Derivative works cannot be distributed. © Michael G. Foster School of Business, University of Washington 2016.

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