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ECONOMICS & SOCIOLOGY


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Impact of capital increase on solvency and profitability of Spanish deposit banks

Vol. 12, No 3, 2019

J. Vicente Fruet-Cardozo,

 

Area of Applied Economics

University of Cordoba,

Cordoba, Spain

E-mail: jvfruet@uco.es

Impact of capital increase on solvency and profitability of Spanish deposit banks

 

José R. Millán,

 

Area of Financial Economics

University of Cordoba,

Cordoba, Spain

E-mail: es1milaj@uco.es


José M. Caridad y Ocerin,

 

Area of Statistics and Econometrics

University of Cordoba,

Cordoba, Spain

E-mail: ccjm@uco.es


Jesús C. Perez-Galvez,

 

Area of Applied Economics

University of Cordoba,

Cordoba, Spain

E-mail: dt1pegaj@uco.es

 


 

Abstract. The aim and hypothesis of this article is to demonstrate that capital increases taking place in the Spanish banking system for almost half a century (1971–2017) led to an increase in both the solvency and the profitability of the system, taking into account the changing situation in the Spanish banking environment in this period. However, it was difficult to homogenise the 1968–70 data with the period studied. Therefore, in addition to analysing ten traditional ratios, a structural equation model (SEM) in path analysis modality was used to validate the results of the effects of the evolution in equity. SEM is widely used in the economic and social sciences to estimate regression models (usually multi-equational) and establish relations between different financial variables and ratios. The estimated model shows a significant global acceptability based on the usual statistical tests and goodness-of-fit measures. The model supports the research hypothesis and the conclusions. The fundamental changes in the Spanish banking system over the last five decades, including the virtual disappearance of the savings bank subsector, has increased the overall solvency of the remaining firms and consolidated their profitability during the crisis years.

 

Received: January, 2019

1st Revision: May, 2019

Accepted: August, 2019

 

DOI: 10.14254/2071-789X.2019/12-3/18

JEL ClassificationC33, G21, G32

Keywords: Spanish banks, consolidated financial statements, ratios, equity, net profit, SEM