The Relationship Between Capital Adequacy and Financial Institution's Viability

Cite this:
Charitou, M. (2016). The Relationship Between Capital Adequacy and Financial Institution’s Viability. Journal of Business Management and Economics, 4(5), 42–48. https://doi.org/10.15520/jbme.2016.vol4.iss5.191.pp42-48
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Abstract

The purpose of this study is to examine the role of capital adequacy in explaining the probability of default of financial institutions in the USA. Using a dataset ofmatched bankrupt and healthy commercial US banks, results show that capital adequacy ratios, as have been recently required by regulatory bodies can be used to predict bank default. These results are useful to bankers, analysts, investors and other stakeholders since they can be used to evaluate the creditworthiness of financial institutions and thus prevent financial distress.

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