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Is regulatory capital more value relevant than book value of equity? A cross-country analysis

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  • Alessandro Mechelli
  • Riccardo Cimini
  • Francesca Mazzocchetti

Abstract

This research aims to enter in the debate about the pros and the cons of regulatory capital (RC) disclosure providing empirical evidences that this measure of capital is more value relevant than book value of equity (BV). To verify our hypothesis, we collected data from the consolidated annual reports issued over the period 2009-2012 by 170 entities listed in 22 of the 27 countries that belong to the Basel Committee and that issue their annual reports complying with the IASB standards. Methodologically, by using a modified version of the Ohlson (1995) model, we use five different techniques that confirm that the RC is more value relevant than BV. So, our findings show that not only RC is issued to strengthen the soundness and the stability of the international banking system and to diminish an existing source of competitive inequality among international banks, but also to provide useful information to investors for their economic decisions.

Suggested Citation

  • Alessandro Mechelli & Riccardo Cimini & Francesca Mazzocchetti, 2015. "Is regulatory capital more value relevant than book value of equity? A cross-country analysis," Applied Economics Letters, Taylor & Francis Journals, vol. 22(11), pages 900-903, July.
    • Handle: RePEc:taf:apeclt:v:22:y:2015:i:11:p:900-903
    DOI: 10.1080/13504851.2014.985368
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    2. Jones, David, 2000. "Emerging problems with the Basel Capital Accord: Regulatory capital arbitrage and related issues," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 35-58, January.
    3. Theil, Henri, 1987. "How many bits of information does an independent variable yield in a multiple regression?," Statistics & Probability Letters, Elsevier, vol. 6(2), pages 107-108, November.
    4. Francis, J & Schipper, K, 1999. "Have financial statements lost their relevance?," Journal of Accounting Research, Wiley Blackwell, vol. 37(2), pages 319-352.
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    1. Alessandro Mechelli & Vincenzo Sforza & Alessandra Stefanoni & Riccardo Cimini, 2018. "The Usefulness of Regulatory Capital for Investors’ Judgments in the Basel 3 Framework," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(6), pages 1-72, April.

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