Cyclicality of capital adequacy ratios in heterogeneous environment: A nonlinear panel smooth transition regression explanation

Rubbaniy, Ghulame; Khalid, Ali Awais; Polyzos, Stathis; Almessabi, Balqees Naser

Abstract

Our study uses a new business cycle (BC) index and a nonlinear panel smooth transition regression model on quarterly data of 1538 bank holding companies of the United States to investigate response of capital adequacy ratios (CARs) to changes in economic activity. Our findings confirm the existence of nonlinear effects of BC on CARs. Although we use a nonlinear model and a new proxy of BC, our results about CARs are not only consistent with existing mainstream literature but also improve estimation and goodness of the estimation of CARs. The study outcome is useful for policymakers for CARs' standards adjustments during recessions.

• Journal Article Type: Article
• Acceptance Date: Nov 1, 2021
• Online Publication Date: Dec 3, 2021
• Publication Date: Sep 30, 2022
• Deposit Date: Nov 20, 2023
• Journal: Managerial and Decision Economics
• Print ISSN: 0143-6570
• Electronic ISSN: 1099-1468
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 43
• Issue: 6
• Pages: 1960-1979
• DOI: https://doi.org/10.1002/mde.3502
• Public URL: https://uwe-repository.worktribe.com/output/11456508