What Explains the Difference in Leverage between Banks and Nonbanks?. (6th November 2017)

• Record Type: Journal Article
• Authors: Berg, Tobias; Gider, Jasmin
• Is Part Of: Journal of financial and quantitative analysis. Volume 52:Number 6(2017)
• Page Start: 2677
• Page End: 2702
• Publication Date: 2017-11-06
• Subjects: Finance -- Periodicals; Investments -- Mathematics -- Periodicals; 332.05
• DOI: 10.1017/S0022109017000734
• Languages: English
• ISSNs: 0022-1090

Abstract

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.