Journal of Financial and Quantitative Analysis Vol. 52 No. 6 2017
What Explains the Difference in Leverage between Banks and Nonbanks?
open access
Abstract
Banks have much more leverage than nonbanks. In this article, we use a joint sample of banks and nonbanks between 1965 and 2013 to analyze the determinants of this leverage difference. We find that a single factor, asset risk, is able to explain up to 90% of this difference. Banks’ assets consist of a diversified portfolio of nonbank debt. Therefore, banks have much lower asset risk than do nonbanks. Because asset risk is a major determinant of capital structure choice, this factor is able to explain a large fraction of the difference between bank and nonbank leverage.
- DOI
- 10.1017/s0022109017000734
- Volume
- 52
- Issue
- 6
- Pages
- 2677-2702
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref