Bank capital structure: revisiting evidence from the field

This paper examines investigates bank (voluntary) capital structure decisions, revisiting a unique dataset gathered through face-to-face interviews with a sample of 51 CEOs of banks, representing 91.5 percent of the total net assets of the Portuguese banking industry, over the 1989-1998 period. Survey evidence documents that the allocation of ownership control rights, growth opportunities, reputation in banking markets, financial flexibility, information signaling, and debt tax shields are significant internal determinants of bank capital structure choice. We also found that capital regulatory discipline is the only significant external determinant. Most survey participants elicited trading off ownership control rights dilution and the benefits of debt / equity securities issuance, and the static tradeoff model, as their preferred capital structure policies. The pecking order and the market-timing theories received moderate to weak preference. The paper extends the literature, providing field evidence that capital structure choice does matter for bank value, and it can be explained within the framework of the corporate capital structure theory.