Predicting banks’ subordinated bond issuances

This study investigates the predictive determinants of banks’ subordinated bond issuances. We employ macroeconomic indices, market-specific factors, individual bank financial ratios, and bank performance indices to predict banks’ subordinated debt management decision-making processes. We use logistic and panel data regression approaches to identify the variables that significantly affect banks’ decision to issue subordinated bonds. The logistic analysis indicates that economic expansion and insolvency risk increase the probability of banks’ subordinated bond issuances, whereas profitability has no significant influence. Consistent with this result, the panel data analysis reveals that the economic growth and insolvency risk in the previous period positively forecast the growth rate of subordinated bonds in the next period. Considering bank-specific financial ratios, we find that banks with higher capital adequacy ratios and operating costs tend to increase the size of their subordinated bond holdings.