Abstract

NDEBELE, Cindy; DE JAGER, Phillip  and  TOERIEN, Francois. Can a pro-public orientation explain the holding of capital by G-SIBs?. SAJBM [online]. 2023, vol.54, n.1, pp.1-14. ISSN 2078-5976.  http://dx.doi.org/10.4102/sajbm.v54i1.3652.

PURPOSE: We investigate the correlation between capital structure and a set of, mostly, standard capital structure determinants for a unique sample: Global Systemically Important Banks (G-SIBs DESIGN/METHODOLOGY/APPROACH: We augment the standard set of regression determinants with a proxy measure of pro-public orientation (DataStream's Refinitiv Environmental, social and governance [ESG] scores). We expect to find that a more pro-public orientated G-SIB holds more capital. This is because very large and systemic banks underpin the functioning of society. The public, therefore, has a direct interest in bank safety with a better capitalised bank being a safer bank. On the other hand, shareholders of a safer bank suffer because of lower profitability FINDINGS/RESULTS: Initial results indicated no relation between pro-public orientation and bank leverage; however, further analysis showed that bank leverage decreases as the governance component score increases. This suggests that the governance of G-SIBs is important for financial stability. Bank size was found to have no intermediation effect on the relationships, implying that our results are not because of a clustering among the largest banks. Correlations between the control variables and bank leverage provide support for the argument that bank leverage is not solely determined by regulations ORIGINALITY/VALUE: We extend recent work on social ratings and capital structure in non-financial firms to banks. Our results provide further support for the proposition that the drivers of the capital structures of non-financial firms also determine those of banks, weakening the argument that capital regulation is the sole determinant of bank capital structures. Our sample focuses attention on a core financial decision of very important, if not the most important, players in the global economy

Keywords : bank capital; environmental; social and governance (ESG) score; global systemically important banks (G-SIBs); banks; capital structure.

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