Original Research - Special Collection: Corporate Governance

Can a pro-public orientation explain the holding of capital by G-SIBs?

Cindy Ndebele, Phillip de Jager, Francois Toerien
South African Journal of Business Management | Vol 54, No 1 | a3652 | DOI: https://doi.org/10.4102/sajbm.v54i1.3652 | © 2023 Cindy Ndebele, Phillip de Jager, Francois Toerien | This work is licensed under CC Attribution 4.0
Submitted: 01 October 2022 | Published: 16 May 2023

About the author(s)

Cindy Ndebele, Department of Finance and Tax, Faculty of Commerce, University of Cape Town, Cape Town, South Africa
Phillip de Jager, Department of Finance and Tax, Faculty of Commerce, University of Cape Town, Cape Town, South Africa
Francois Toerien, Department of Finance and Tax, Faculty of Commerce, University of Cape Town, Cape Town, South Africa

Abstract

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

JEL Codes

G21: Banks • Depository Institutions • Micro Finance Institutions • Mortgages; G32: Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill; G39: Other

Sustainable Development Goal

Goal 8: Decent work and economic growth

Metrics

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