| Abstract: | Using pooled time series/cross section data of Australian trading banks over the 1967–1988 period, this study examines the determinants of bank capital ratios. Little evidence is found to support the tax benefit/bankruptcy cost trade-off, whereas evidence is broadly consistent with the predictions of Myers' pecking order theory in the presence of transactions costs and asymmetric information. Institutional factors, including bank deregulation and type of bank, are also significant determinants of capital management of Australian trading banks.The author is from the University of New South Wales, Kensington, N.S.W. Thanks are due to Neil Esho, Paul Gatward, Warren Hogan, Michael Skully and two anonymous referees for helpful comments on earlier drafts of this paper. |
