Capital management and bank value

Many banks are under pressure to increase funding by capital, especially equity capital. Return on assets increases, the leverage multiplier declines and the return required by investors should decline as banks increase reliance on equity financing. This article empirically demonstrates the importance of risk and profitability on bank value, and then conceptually illustrates how the price/book ratio and related value should be affected by those banking units either able to issue equity capital or change their capital structure.