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

Mechelli, Alessandro; Cimini, Riccardo; Mazzocchetti, Francesca

doi:10.1080/13504851.2014.985368

Cited by 3 publications

(3 citation statements)

References 7 publications

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“…As far we are concerned, several arguments lead us to hypothesise that investors also price regulatory capital higher than book value of equity under the third Accord of Basel, validating results of Mechelli et al (2015) who investigate its explanatory power under the rules of the second accord.…”

Section: Literature Review and Hypothesis Developmentsupporting

confidence: 56%

“…These results contribute to the literature for twofold. First, the paper provides evidence that regulatory capital continues to be more value relevant than book value of equity under the new rules of the third accord of Basel, validating the results of Mechelli et al (2015) who investigate its explanatory power under the rules of the second accord. Second, the paper fills the gap resulting from the absence of papers that investigate the usefulness for investors' decisions of the single parts of regulatory capital devoted to absorb losses due to the risk profile of the bank.…”

Section: Introductionsupporting

confidence: 58%

“…Using a multi-country panel of banks during Q12005-Q12009, the authors also find that a more positive association with subsequent stock returns is stronger for higher quality capital in the form of Tier 1 leverage and tangible common equity (Demirguc-Kunt et al, 2013, p. 1162. More recently, in the same vein, focusing on the second accord of Basel, Mechelli et al (2015) show that regulatory capital is more value relevant than book value of equity for investors' strategies.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

See 2 more Smart Citations

The Usefulness of Regulatory Capital for Investors’ Judgments in the Basel 3 Framework

Mechelli¹,

Sforza²,

Stefanoni³

et al. 2018

IJBM

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Value relevance studies assess how well accounting amounts reflect the market information that investors use for their economic decisions. Analysing a sample of 90 banks listed in 24 European stock markets, this study uses a price model (Ohlson, 1995) and provides evidence that a risk-sensitive metric like regulatory capital is more useful for investors’ decisions than book value of equity and that investors price the parts of regulatory capital that are devoted ideally to absorb losses differently due to the different risks taken. In particular, the part devoted to absorb losses due to credit risk is priced higher than the parts devoted to absorb other risks (e.g. market risks, operational risk). According to our evidence, this is due to the business model of the entities analysed, which are mostly retail and wholesale banks with significant credit exposure to clients and other banks. The paper adds to the literature and has implications for regulators and standard setters showing that the assessment and disclosure of regulatory capital not only strengthens the soundness and the stability of the international banking system (Basle Committee on banking supervision, 1988), but provides to investors useful information for their future investment strategies.

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Section: Literature Review and Hypothesis Developmentsupporting

confidence: 56%

Section: Introductionsupporting

confidence: 58%

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

See 1 more Smart Citation

The Usefulness of Regulatory Capital for Investors’ Judgments in the Basel 3 Framework

Mechelli¹,

Sforza²,

Stefanoni³

et al. 2018

IJBM

Self Cite

View full text Add to dashboard Cite

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Capital markets union: Factors affecting financial information relevance

Manzillo¹

2016

COC

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This study examines the European capital markets and the differences in the way in which share prices reflect financial information in light of the European project “Capital Markets Union”. Findings suggest that diversity exists and enforcement regime affects the above relationship. In particular, Small and Medium Enterprises (SMEs) are characterized by a weak relationship between prices and accounting information compared to large issuers, but this relationship enhance if the SMEs have an institutional investor as significant shareholder. Finally, findings reveal that whether there are ratings or analyst coverage on an issuer, prices are more linked to expected net income instead of the historical data. These results confirm the goodness of the action plan of building a Capital Markets Union.

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A Review of the Literature on IFRS Adoption From the Perspective of the Value Relevance

Ertuğrul

2019

Handbook of Research on Global Issues in Financial Communication and Investment Decision Making

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International Financial Reporting Standards (IFRS)-based financial reporting has become widespread all around the world especially after its mandatory adoption in the European Union in 2005. There are several objectives of IFRS-based financial reporting, all of which depends on the idea of a single set of high-quality standards as frequently highlighted by promoters of IFRS. This literature review depicts a comprehensive picture of the archival research on the impact of IFRS-based reporting on capital markets from the perspective of the value relevance (VR) concept. First, the VR concept, as well as models employed to measure the VR, are described. Afterwards, selected studies of the archival research are grouped, summarized, and discussed. Finally, archival research is methodologically analyzed by considering different dimensions. All in all, this literature review provides information on IFRS adoption from the perspective of the VR.

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

Cited by 3 publications

References 7 publications

The Usefulness of Regulatory Capital for Investors’ Judgments in the Basel 3 Framework

The Usefulness of Regulatory Capital for Investors’ Judgments in the Basel 3 Framework

Capital markets union: Factors affecting financial information relevance

A Review of the Literature on IFRS Adoption From the Perspective of the Value Relevance

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