AbstractsBusiness Management & Administration

Essays in Banking and Corporate Finance

by Alexander Schandlbauer

Institution: Vienna University of Economics and Business
Year: 2014
Keywords: RVK QK 600, QK 620, QP 750; Corporate Finance / Kreditwesen / Kreditmarkt / Rentenmarkt / Finanzmathematik
Record ID: 1031801
Full text PDF: http://epub.wu.ac.at/4274/4/Schandlbauer.pdf


This thesis consists of three independent papers, two of which examine questions related to the capital structure of financial institutions and one which analyzes the capital structure of non-financial companies. The first paper empirically highlights the first order importance of taxes for the capital structure decision of financial institutions. Using a difference-in-differences methodology, I show that an increase in the local U.S. state corporate tax rate affects both sides of the banks' balance sheet. Banks which are exposed to a tax increase raise their non-depository debt by approximately 5.9% one period prior to the enactment of the tax change. The overall average however hides a large cross sectional heterogeneity: better-capitalized banks have the financial flexibility to increase their debt and thus to benefit from an enlarged tax shield. Worse-capitalized banks instead alter the asset side of their balance sheet: consistent with the notion that a tax increase induces a reduction of their available after-tax cash-flow, these banks constrain the expansion of customer loans. The second paper again examines financial institutions: Using a large sample of U.S. financial institutions between 2000 - 2007, this paper documents that the distance from the target capital structure helps explain several capital structure adjustments. First, financial institutions which are either over-leveraged or under-capitalized with respect to their respective target are more likely to issue different securities which increase their financial flexibility. While both of those bank specific targets play an important role, the distance to the overall regulatory constraint further influences the banks' behavior. Second, this paper also provides some evidence on the real effects which deviations from the target capital structure can have: The further under-capitalized banks are, the more banks reduce their growth rate of customer loans and, additionally, the more banks deviate from their leverage target, the more they increase their asset risk. The third paper investigates in how far bond covenants are able to mitigate the well-known asset substitution problem. Using the simple intuition that such agency conflict is most likely to occur in times of financial distress, a comprehensive sample of defaulted companies between 2000 and 2013 is examined to analyze whether those firms have in fact engaged in risk-shifting activities prior to default. To identify the unobservable risk-shifting behavior, a simple structural model of a firm is employed and a novel conditional simulated methods of moments estimation approach is developed. The results indicate that bond covenants are indeed beneficial: Compared to companies whose outstanding bonds do not have any covenant associated, companies with protective covenants are in general less likely to engage in risk-shifting just prior to bankruptcy and if they still do so, they increase their cash-flow volatility by less.(author's abstract)