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Bank leverage and profitability: Evidence from a sample of international banks

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  • Beltratti, Andrea
  • Paladino, Giovanna

Abstract

We examine the relationship between leverage and residual income for a sample of international banks using an unbalanced panel over the period 2005–2011. Our GMM-based econometric model considers both bank-level and country-level variables to control for several other factors aside from equity capital and allows for endogeneity and unobservable heterogeneity. We document a significant positive non-monotonic link between the capital ratio and residual income for the international banking industry. These results are robust to a number of different model specifications.

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  • Beltratti, Andrea & Paladino, Giovanna, 2015. "Bank leverage and profitability: Evidence from a sample of international banks," Review of Financial Economics, Elsevier, vol. 27(C), pages 46-57.
    • Handle: RePEc:eee:revfin:v:27:y:2015:i:c:p:46-57
    DOI: 10.1016/j.rfe.2015.08.002
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