Capital and risk in Italian banks: A simultaneous equation approach
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See the Annual Report of the Bank of Italy for the year 1989.
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We provide a more detailed description of Shrieves and Dahl's model in Section The evidence for Italian banks.
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We also used different thresholds of the indicator, such as the 10th percentile and the median. Results are very similar and are therefore not reported.
As an example, if bank (or banking group) C is the result of a merger of banks (banking groups) A and B that took place at time t, A and B's balance sheets are aggregated also before t. A potential drawback of this procedure is that it may introduce some survivor bias.
We have excluded outlier banks by eliminating the observations in which the values of the variables are above and below the last and the first percentile respectively.
A preliminary diagnostic analysis reveals the presence of heteroskedasticity and autocorrelation. Given that robust standard errors are not available in Stata 8.1 for 3SLS and 2SLS estimations, we tested the robustness of the results using a bootstrap procedure with 200 repetitions. The bootstrapped confidence intervals broadly confirm the validity of the results reported below.