Pub Date : 2024-07-29DOI: 10.1016/j.irfa.2024.103508
Sustainable finance has gained attention as investors emphasize environmental, social, and governance (ESG) factors in investment decisions. Understanding ESG's impact on corporate financing is crucial for stakeholders. However, evidence on ESG and capital structure, especially in Chinese enterprises, is limited. This study investigates the link between ESG performance and capital structure in Chinese firms, focusing on debt and equity financing. Using panel data from 2010 to 2022 and the system GMM model, the study controls for firm-specific factors. Results show environmental and governance scores negatively relate to debt financing and positively to equity financing. Social scores show no significant impact on debt but a positive one on equity financing. All ESG indicators positively relate to the debt-to-equity ratio, highlighting sustainability's role in capital structure decisions. These findings guide policymakers in incentivizing sustainable practices and help corporate leaders align financing strategies with sustainability goals, supporting long-term growth and stakeholder value.
{"title":"How does ESG performance determine the level of specific financing in capital structure? New insights from China","authors":"","doi":"10.1016/j.irfa.2024.103508","DOIUrl":"10.1016/j.irfa.2024.103508","url":null,"abstract":"<div><p>Sustainable finance has gained attention as investors emphasize environmental, social, and governance (ESG) factors in investment decisions. Understanding ESG's impact on corporate financing is crucial for stakeholders. However, evidence on ESG and capital structure, especially in Chinese enterprises, is limited. This study investigates the link between ESG performance and capital structure in Chinese firms, focusing on debt and equity financing. Using panel data from 2010 to 2022 and the system GMM model, the study controls for firm-specific factors. Results show environmental and governance scores negatively relate to debt financing and positively to equity financing. Social scores show no significant impact on debt but a positive one on equity financing. All ESG indicators positively relate to the debt-to-equity ratio, highlighting sustainability's role in capital structure decisions. These findings guide policymakers in incentivizing sustainable practices and help corporate leaders align financing strategies with sustainability goals, supporting long-term growth and stakeholder value.</p></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5,"publicationDate":"2024-07-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141951871","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-28DOI: 10.1016/j.irfa.2024.103514
We investigate the impact of carbon risk on firms' innovation investments. Using a two-way fixed-effects panel regression with a panel dataset of Chinese listed firms for 2018–2021, we find that carbon risk inhibits firms' innovation investments. We also confirm the U-shaped relationship between carbon risk and innovation investment over the long term. We further reveal the conditioning roles of financial constraints, new investments, and carbon information disclosure at the firm level. Additionally, we find that firms' environmental awareness alleviates the impact of carbon risk on innovation investment. The results of this study have implications for firm managers, encouraging them to integrate carbon risk considerations when making the decision to promote firm innovation.
我们研究了碳风险对企业创新投资的影响。通过对2018-2021年中国上市公司的面板数据集进行双向固定效应面板回归,我们发现碳风险会抑制企业的创新投资。我们还证实了碳风险与创新投资之间的长期 U 型关系。我们进一步揭示了财务约束、新投资和碳信息披露在企业层面的调节作用。此外,我们还发现,企业的环境意识会减轻碳风险对创新投资的影响。本研究的结果对企业管理者具有启示意义,鼓励他们在做出促进企业创新的决策时将碳风险因素考虑在内。
{"title":"Ecological risk management: Effects of carbon risk on firm innovation investment","authors":"","doi":"10.1016/j.irfa.2024.103514","DOIUrl":"10.1016/j.irfa.2024.103514","url":null,"abstract":"<div><p>We investigate the impact of carbon risk on firms' innovation investments. Using a two-way fixed-effects panel regression with a panel dataset of Chinese listed firms for 2018–2021, we find that carbon risk inhibits firms' innovation investments. We also confirm the U-shaped relationship between carbon risk and innovation investment over the long term. We further reveal the conditioning roles of financial constraints, new investments, and carbon information disclosure at the firm level. Additionally, we find that firms' environmental awareness alleviates the impact of carbon risk on innovation investment. The results of this study have implications for firm managers, encouraging them to integrate carbon risk considerations when making the decision to promote firm innovation.</p></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5,"publicationDate":"2024-07-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141841653","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-28DOI: 10.1016/j.irfa.2024.103513
Interconnected financial markets, especially those stemming from changes in monetary policy or shifts in financial, political, or geopolitical conditions, ease the transmission of spillovers. Understanding these dynamics is crucial for policymakers and investors. Therefore, identifying cross-country spillovers across time and frequency domains, along with assessing the role of monetary policy during periods of economic instability and escalating geopolitical risk, holds significant importance. This study contributes to the literature by revealing important aspects of network connectedness among monetary policy and uncertainty indices, in terms of frequency and time horizon, for the US and the UK, over the period 2014–2023. First, we find stronger interdependence between the series in the long term, with short-medium run connectedness prevailing during specific periods and events, such as Brexit, the COVID-19 pandemic, and the Russian-Ukrainian War. Second, shadow short rates often receive spillovers from financial stress in the short-medium term but transmit spillovers in the long term, implying the stabilizing influence of monetary policy in the long run. Third, geopolitical risk is responsible for most of the spillovers reflected in financial and economic uncertainty in 2022, and finally, the US emerges as the dominant transmitter of spillovers to the UK.
{"title":"Monetary policy and uncertainty spillovers: Evidence from a wavelet and frequency connectedness analysis","authors":"","doi":"10.1016/j.irfa.2024.103513","DOIUrl":"10.1016/j.irfa.2024.103513","url":null,"abstract":"<div><p>Interconnected financial markets, especially those stemming from changes in monetary policy or shifts in financial, political, or geopolitical conditions, ease the transmission of spillovers. Understanding these dynamics is crucial for policymakers and investors. Therefore, identifying cross-country spillovers across time and frequency domains, along with assessing the role of monetary policy during periods of economic instability and escalating geopolitical risk, holds significant importance. This study contributes to the literature by revealing important aspects of network connectedness among monetary policy and uncertainty indices, in terms of frequency and time horizon, for the US and the UK, over the period 2014–2023. First, we find stronger interdependence between the series in the long term, with short-medium run connectedness prevailing during specific periods and events, such as Brexit, the COVID-19 pandemic, and the Russian-Ukrainian War. Second, shadow short rates often receive spillovers from financial stress in the short-medium term but transmit spillovers in the long term, implying the stabilizing influence of monetary policy in the long run. Third, geopolitical risk is responsible for most of the spillovers reflected in financial and economic uncertainty in 2022, and finally, the US emerges as the dominant transmitter of spillovers to the UK.</p></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5,"publicationDate":"2024-07-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141845362","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-28DOI: 10.1016/j.irfa.2024.103509
Financial support is essential for the sustenance and growth of corporations. In the contemporary corporate landscape, the importance of integrating Environmental, Social, and Governance (ESG) principles into strategic frameworks is increasingly recognized, with the role of bank competition in shaping corporate ESG performance becoming especially significant. This paper selects the data of A-share listed companies in China from 2010 to 2022 as a sample to empirically test the impact of bank competition on ESG performance and its mechanism. The study found that bank competition could improve the ESG performance of enterprises, a conclusion that holds enterprise after conducting a battery of robustness tests. The promotion effect is more significant in non-state-owned enterprises, small enterprises and enterprises in the central and eastern regions. Mechanism test shows that bank competition exerts its influence through “credit channel”, “investment channel” and “information channel.” Furthermore, increased marketization and enhanced corporate reputation are shown to amplify the positive effects of bank competition on ESG performance. This paper provides micro-level evidence for bank competition to enhance ESG performance of enterprises, and has implications for stimulating bank competition to promote enterprises to practice ESG performance and achieve sustainable development.
{"title":"Is bank competition conducive to corporate ESG performance?","authors":"","doi":"10.1016/j.irfa.2024.103509","DOIUrl":"10.1016/j.irfa.2024.103509","url":null,"abstract":"<div><p>Financial support is essential for the sustenance and growth of corporations. In the contemporary corporate landscape, the importance of integrating Environmental, Social, and Governance (ESG) principles into strategic frameworks is increasingly recognized, with the role of bank competition in shaping corporate ESG performance becoming especially significant. This paper selects the data of A-share listed companies in China from 2010 to 2022 as a sample to empirically test the impact of bank competition on ESG performance and its mechanism. The study found that bank competition could improve the ESG performance of enterprises, a conclusion that holds enterprise after conducting a battery of robustness tests. The promotion effect is more significant in non-state-owned enterprises, small enterprises and enterprises in the central and eastern regions. Mechanism test shows that bank competition exerts its influence through “credit channel”, “investment channel” and “information channel.” Furthermore, increased marketization and enhanced corporate reputation are shown to amplify the positive effects of bank competition on ESG performance. This paper provides micro-level evidence for bank competition to enhance ESG performance of enterprises, and has implications for stimulating bank competition to promote enterprises to practice ESG performance and achieve sustainable development.</p></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5,"publicationDate":"2024-07-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141850419","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-27DOI: 10.1016/j.irfa.2024.103501
Hollywood film releases attract U.S. investors' attention away from the financial markets. This is reflected in lower trading activity and abnormal Google search volume for firm names between film and non-film days. The resultant investor inattention leads to a significantly higher stock return comovement with the market on film release days. Interestingly, films with A-list star actors and blockbuster movies exhibit a more pronounced impact than their counterparts. Finally, we show that being aware of this Hollywood film-induced mispricing can yield an annualized abnormal risk-adjusted return of up to 13.5% within five days around the release events.
好莱坞电影的上映吸引了美国投资者对金融市场的关注。这反映在电影上映日和非电影上映日之间公司名称的交易活动和谷歌搜索量的异常降低。投资者注意力的分散导致电影上映日的股票收益与市场的相关性显著提高。有趣的是,拥有 A 级明星演员和大片的电影比同类电影表现出更明显的影响。最后,我们的研究表明,意识到这种由好莱坞电影引发的错误定价会在电影上映前后五天内产生高达 13.5% 的年化异常风险调整回报。
{"title":"When Hollywood movies steal the show, stock returns dance more with the market!","authors":"","doi":"10.1016/j.irfa.2024.103501","DOIUrl":"10.1016/j.irfa.2024.103501","url":null,"abstract":"<div><p>Hollywood film releases attract U.S. investors' attention away from the financial markets. This is reflected in lower trading activity and abnormal Google search volume for firm names between film and non-film days. The resultant investor inattention leads to a significantly higher stock return comovement with the market on film release days. Interestingly, films with A-list star actors and blockbuster movies exhibit a more pronounced impact than their counterparts. Finally, we show that being aware of this Hollywood film-induced mispricing can yield an annualized abnormal risk-adjusted return of up to 13.5% within five days around the release events.</p></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5,"publicationDate":"2024-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1057521924004332/pdfft?md5=1fafae439812ece2b9cb55f414da7ced&pid=1-s2.0-S1057521924004332-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141848318","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-27DOI: 10.1016/j.irfa.2024.103505
We examined the impact of the volume of Q&As from minority shareholders on interactive questions and answers (IQA) platforms in restraining tunneling. The findings suggest that Q&A volumes contribute to less tunneling. We find that by lowering information asymmetry and enhancing firms' internal control effectiveness, IQA platforms play a monitoring function, effectively restraining tunneling. The moderating analysis reveals that the impact of IQA platforms on restraining tunneling is more salient when a firm has (1) only small shareholdings from other large blockholders, (2) low-quality auditors, (3) low institutional investor shareholdings, (4) a large wedge of ownership and control, or (5) controlling shareholders who pledge their shares to financial institutions. Additional analysis suggests that the effectiveness of IQA platforms improves with more timely, thorough, readable, and related replies. Our results support the public policy of providing online platforms for minority shareholders to exercise their rights.
{"title":"Is online interactive media monitoring effective? Evidence from corporate tunneling in China","authors":"","doi":"10.1016/j.irfa.2024.103505","DOIUrl":"10.1016/j.irfa.2024.103505","url":null,"abstract":"<div><p>We examined the impact of the volume of Q&As from minority shareholders on interactive questions and answers (IQA) platforms in restraining tunneling. The findings suggest that Q&A volumes contribute to less tunneling. We find that by lowering information asymmetry and enhancing firms' internal control effectiveness, IQA platforms play a monitoring function, effectively restraining tunneling. The moderating analysis reveals that the impact of IQA platforms on restraining tunneling is more salient when a firm has (1) only small shareholdings from other large blockholders, (2) low-quality auditors, (3) low institutional investor shareholdings, (4) a large wedge of ownership and control, or (5) controlling shareholders who pledge their shares to financial institutions. Additional analysis suggests that the effectiveness of IQA platforms improves with more timely, thorough, readable, and related replies. Our results support the public policy of providing online platforms for minority shareholders to exercise their rights.</p></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5,"publicationDate":"2024-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141845032","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-27DOI: 10.1016/j.irfa.2024.103510
Using a sample of Chinese high-tech firms from 2007 to 2020, this study investigates the impact of U.S. export control regulations (ECRs) on Chinese high-tech firms' innovation. The results reveal that U.S. ECRs force Chinese firms to increase their R&D inputs and outputs. Moreover, the findings illustrate that technology dependence and import competition act as mechanisms to mediate such trade effects. Our cross-sectional analyses indicate that the positive relationship between U.S. ECRs and Chinese firms' innovation strengthens in firms importing more high-tech products, with better innovation accumulation, with fewer financial constraints, or with more financial subsidies. Fundamentally, this study complements the literature on the U.S.-China trade war and offers policy implications for the Chinese government.
{"title":"The impact of the U.S. export controls on Chinese firms' innovation: Evidence from Chinese high-tech firms","authors":"","doi":"10.1016/j.irfa.2024.103510","DOIUrl":"10.1016/j.irfa.2024.103510","url":null,"abstract":"<div><p>Using a sample of Chinese high-tech firms from 2007 to 2020, this study investigates the impact of U.S. export control regulations (ECRs) on Chinese high-tech firms' innovation. The results reveal that U.S. ECRs force Chinese firms to increase their R&D inputs and outputs. Moreover, the findings illustrate that technology dependence and import competition act as mechanisms to mediate such trade effects. Our cross-sectional analyses indicate that the positive relationship between U.S. ECRs and Chinese firms' innovation strengthens in firms importing more high-tech products, with better innovation accumulation, with fewer financial constraints, or with more financial subsidies. Fundamentally, this study complements the literature on the U.S.-China trade war and offers policy implications for the Chinese government.</p></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5,"publicationDate":"2024-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141842735","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-27DOI: 10.1016/j.irfa.2024.103506
This study uses datasets representing local non-governmental organizations (NGOs) to examine how local environmental organizations enhance long-term investor value appropriation (LIVA). We explore how external and internal firm factors influence the impact of local activism. Our results indicate a positive effect of local activism on LIVA, particularly in contexts where local communities and firm governance structures prioritize long-term value. Furthermore, in examining the mechanisms through which local environmental organizations affect LIVA, we find that firms tend to increase their environmental disclosures in response to local activism. These findings support the social movement theory that social activities inspire firms' social and environmental activities and reporting practices, subsequently affecting LIVA.
{"title":"Local environmental organizations and long-term investor value appropriation","authors":"","doi":"10.1016/j.irfa.2024.103506","DOIUrl":"10.1016/j.irfa.2024.103506","url":null,"abstract":"<div><p>This study uses datasets representing local non-governmental organizations (NGOs) to examine how local environmental organizations enhance long-term investor value appropriation (LIVA). We explore how external and internal firm factors influence the impact of local activism. Our results indicate a positive effect of local activism on LIVA, particularly in contexts where local communities and firm governance structures prioritize long-term value. Furthermore, in examining the mechanisms through which local environmental organizations affect LIVA, we find that firms tend to increase their environmental disclosures in response to local activism. These findings support the social movement theory that social activities inspire firms' social and environmental activities and reporting practices, subsequently affecting LIVA.</p></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5,"publicationDate":"2024-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141851332","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-27DOI: 10.1016/j.irfa.2024.103507
We examine the impact of the information content of a firm's corporate social responsibility (CSR) report on stock mispricing using a sample of Chinese firms from 2007 to 2021. By leveraging the recent advances in textual analysis, we apply the Word2Vec technique to detect the information content of a focal firm's CSR report. Our findings suggest that the degree of a focal firm's stock mispricing decreases with increased information content of its CSR report. The results remain robust after considering a variety of sensitivity tests. Mechanism analyses reveal that the information content of a CSR report mitigates stock mispricing by reducing information asymmetry and alleviating investor irrational behavior. Heterogeneity analysis shows that the effect is more salient when firms face higher degree of uncertainty, both at the macroeconomic and industrial levels. Additionally, we document that a higher degree of information content of a CSR report contributes to a higher firm value.
{"title":"Does information content of a corporate social responsibility report matter for stock mispricing? Evidence from China","authors":"","doi":"10.1016/j.irfa.2024.103507","DOIUrl":"10.1016/j.irfa.2024.103507","url":null,"abstract":"<div><p>We examine the impact of the information content of a firm's corporate social responsibility (CSR) report on stock mispricing using a sample of Chinese firms from 2007 to 2021. By leveraging the recent advances in textual analysis, we apply the Word2Vec technique to detect the information content of a focal firm's CSR report. Our findings suggest that the degree of a focal firm's stock mispricing decreases with increased information content of its CSR report. The results remain robust after considering a variety of sensitivity tests. Mechanism analyses reveal that the information content of a CSR report mitigates stock mispricing by reducing information asymmetry and alleviating investor irrational behavior. Heterogeneity analysis shows that the effect is more salient when firms face higher degree of uncertainty, both at the macroeconomic and industrial levels. Additionally, we document that a higher degree of information content of a CSR report contributes to a higher firm value.</p></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5,"publicationDate":"2024-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141840388","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2024-07-27DOI: 10.1016/j.irfa.2024.103502
We develop a model to compare the changes in banks' equilibrium capital and liquidity holdings under various versions of Basel-style requirements across economic cycles. We find that banks' liquidity is countercyclical while capital buffer is procyclical. Countercyclical liquidity-holding behaviour causes a larger liquidation of loans in economic expansions. We also find that Basel-style liquidity requirements help to lower banks' loan liquidations in economic upturns, although it is of limited effectiveness in economic downturns. We thus suggest that similar to capital requirements, liquidity requirements should also be set in a countercyclical manner. Our results show that capital requirements and liquidity requirements are complements in economic upturns in terms of enhancing banking stability and obtaining social welfare. Furthermore, Basel III outperforms previous regulatory versions in enhancing bank stability and social welfare in extreme situations.
{"title":"Should Basel-style liquidity requirements be set countercyclically? Evidence from a numerical analysis","authors":"","doi":"10.1016/j.irfa.2024.103502","DOIUrl":"10.1016/j.irfa.2024.103502","url":null,"abstract":"<div><p>We develop a model to compare the changes in banks' equilibrium capital and liquidity holdings under various versions of Basel-style requirements across economic cycles. We find that banks' liquidity is countercyclical while capital buffer is procyclical. Countercyclical liquidity-holding behaviour causes a larger liquidation of loans in economic expansions. We also find that Basel-style liquidity requirements help to lower banks' loan liquidations in economic upturns, although it is of limited effectiveness in economic downturns. We thus suggest that similar to capital requirements, liquidity requirements should also be set in a countercyclical manner. Our results show that capital requirements and liquidity requirements are complements in economic upturns in terms of enhancing banking stability and obtaining social welfare. Furthermore, Basel III outperforms previous regulatory versions in enhancing bank stability and social welfare in extreme situations.</p></div>","PeriodicalId":48226,"journal":{"name":"International Review of Financial Analysis","volume":null,"pages":null},"PeriodicalIF":7.5,"publicationDate":"2024-07-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1057521924004344/pdfft?md5=5a7f98c52e60d4c4d24802793ce1db70&pid=1-s2.0-S1057521924004344-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141853874","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":1,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}