|標題:||Book-to-Market Equity, Asset Correlations and the Basel Capital Requirement|
Department of Information Management and Finance
|關鍵字:||bank capital requirement;asset correlation;book-to-market equity;firm size;default probability|
|摘要:||This paper examines the effect of book-to-market equity (BE/ME) on asset correlations under the Basel capital requirement. We find that BE/ME captures variations in asset correlations after controlling for firm size, default probability and industry effects from 1987 to 2011. Obligors with higher BE/ME exhibit lower asset correlations compared to those with lower BE/ME. Decomposing BE/ME into assets-in-place and growth options based on the asset pricing literature shows that obligors with more assets-in-place or more fixed assets have higher BE/ME and lower asset correlations than those with more growth options. Overall, our findings suggest that BE/ME is an additional important factor that may improve the estimates of asset correlations and thereby banks' capital adequacy.|
|期刊:||JOURNAL OF BUSINESS FINANCE & ACCOUNTING|
|Appears in Collections:||Articles|
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