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Bond Issuance and the Funding Choices of European Banks: The Consequences of Public Debt

Rancan, Michela; Cariboni, Jessica; Keasey, Kevin; Vallascas, Francesco

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Authors

Michela Rancan

Jessica Cariboni

Kevin Keasey



Abstract

European banks raise less funds in the bond market when there is a larger public debt in their national economies and this is reflected in lower leverage. We exploit numerous sources of heterogeneity in our data to demonstrate this result is driven by a crowding out effect from the public arena and not by a sovereign risk channel or political influence. The crowding out effect is stronger for less internationally active or smaller banks, and in banks characterized by more traditional business models. Our findings indicate that additional capital requirements on sovereign bond holdings can also influence bank funding composition via a decrease in the demand for sovereign bonds by the banking industry. The specific effect of these regulatory initiatives is critically dependent on bank characteristics.

Citation

Rancan, M., Cariboni, J., Keasey, K., & Vallascas, F. (2023). Bond Issuance and the Funding Choices of European Banks: The Consequences of Public Debt. Journal of Empirical Finance, 74, Article 101417. https://doi.org/10.1016/j.jempfin.2023.101417

Journal Article Type Article
Acceptance Date Aug 28, 2023
Online Publication Date Aug 31, 2023
Publication Date 2023-12
Deposit Date Sep 4, 2023
Publicly Available Date Sep 4, 2023
Journal Journal of Empirical Finance
Print ISSN 0927-5398
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 74
Article Number 101417
DOI https://doi.org/10.1016/j.jempfin.2023.101417
Public URL https://durham-repository.worktribe.com/output/1728897

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