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Systemic Banking Crises, Institutional Environment, and Corporate Leverage

Published online by Cambridge University Press:  27 November 2020

Özde Öztekin Open the ORCID record for Özde Öztekin [Opens in a new window]
Özde Öztekin*
Affiliation:
Florida International University, College of Business
*
ooztekin@fiu.edu (corresponding author)
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Abstract

This study examines corporate leverage during systemic banking crises in an international setting, including 85 countries from 1987 to 2017. Using the historically determined component of institutions and exogenous variations in institution building, the analyses show that leverage cyclicality varies substantially across institutional settings. Leverage is strongly countercyclical under more binding constraints on the capital supply, suggesting important supply effects of such crises on leverage. Weak institutions are more conducive to crises and uncertainty. Leverage countercyclicality is more pronounced during crises that coincide with higher uncertainty, whereas leverage is procyclical with stronger legal systems and information sharing in capital markets.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 3 , May 2022 , pp. 1115 - 1141
Copyright
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

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Footnotes

I thank Paul Malatesta (the editor) and an anonymous referee for very helpful comments and suggestions. All remaining errors are my own.

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