Volume 9, Issue 4, December 2014, Pages 1887–1908
Selase Kanda1 and Tabassum Iqbal2
1 University of Manchester, School of Social Sciences, Oxford Road, P.O. Box M13 9PL, Manchester, United Kingdom
2 COMSAT Institute of Information Technology, Park Road, Chak Shahzad, 44000, Islamabad, Pakistan
Original language: English
Copyright © 2014 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
In this article, we try to identify the link between the capital structure dynamics of banks and the European sovereign debt crisis, looking at the drivers of leverage and how their interactions with leverage changed between the periods before and during the crisis. We review the existing literature on the links between the sovereign debt crisis and banks, as well as literature discussing the changes in bank funding patterns with the view to understanding how leverage dynamics changed during the debt crisis period.
We found out that although most of the variables of interest were relevant in explaining leverage over the period under study as a whole, the variables that captured macroeconomic interactions with leverage were more relevant to leverage during the crisis period than variables capturing bank specific information. Meanwhile this study showed a significant reduction of leverage during the crisis period in line with a risky environment and regulation pressures, with much of this reduction being explained by factors other than bank-specific determinants of leverage.
Author Keywords: Sovereign Debt, Leverage, Capital Structure, Bank-specific Determinants.
Selase Kanda1 and Tabassum Iqbal2
1 University of Manchester, School of Social Sciences, Oxford Road, P.O. Box M13 9PL, Manchester, United Kingdom
2 COMSAT Institute of Information Technology, Park Road, Chak Shahzad, 44000, Islamabad, Pakistan
Original language: English
Copyright © 2014 ISSR Journals. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Abstract
In this article, we try to identify the link between the capital structure dynamics of banks and the European sovereign debt crisis, looking at the drivers of leverage and how their interactions with leverage changed between the periods before and during the crisis. We review the existing literature on the links between the sovereign debt crisis and banks, as well as literature discussing the changes in bank funding patterns with the view to understanding how leverage dynamics changed during the debt crisis period.
We found out that although most of the variables of interest were relevant in explaining leverage over the period under study as a whole, the variables that captured macroeconomic interactions with leverage were more relevant to leverage during the crisis period than variables capturing bank specific information. Meanwhile this study showed a significant reduction of leverage during the crisis period in line with a risky environment and regulation pressures, with much of this reduction being explained by factors other than bank-specific determinants of leverage.
Author Keywords: Sovereign Debt, Leverage, Capital Structure, Bank-specific Determinants.
How to Cite this Article
Selase Kanda and Tabassum Iqbal, “HOW THE SOVEREIGN DEBT CRISIS AFFECTED THE CAPITAL STRUCTURE OF EURO ZONE BANKS,” International Journal of Innovation and Applied Studies, vol. 9, no. 4, pp. 1887–1908, December 2014.
