Capital structure puzzle and banks: need for a unique approach?

Abstract

Purpose

This study aims to examine some of the commonly proposed deviants associated with the banking industry in the context of the capital structure puzzle. The paper considers the role of guarantees, information asymmetry and other frictional factors in the context of modern financial markets and examines whether these factors deserve special consideration in solving the capital structure puzzle for banks.

Design/methodology/approach

The authors adopt the argumentation theory model proposed by Toulmin (1958) as the methodological approach in this paper.

Findings

The findings from this paper demonstrate that any solution to the capital structure puzzle, whenever available, will also solve the capital structure puzzle for banks without additional efforts. The focus of future research should be on solving the generic capital structure puzzle for a universal set of firms rather than focusing on the banking industry as a subset with unique features.

Originality/value

The paper adopts a novel methodological approach offered by argumentation theory to pursue the enquiry. To the best of the knowledge, this paper is the first paper in the finance literature that uses argumentation theory to develop a theoretical construct. The finding from this study offers guidance for the proliferation of research paradigms in the capital structure puzzle.

Citation

Pandey, A. (2022), "Capital structure puzzle and banks: need for a unique approach?", Qualitative Research in Financial Markets, Vol. 14 No. 3, pp. 380-394. https://doi.org/10.1108/QRFM-09-2020-0178