Journal of Modern Accounting and Auditing, January 2017, Vol. 13, No. 1, 8-18 doi: 10.17265/1548-6583/2017.01.002 The Impact of Capital Requirements on Companies’ External Financing Günter Hofbauer Technische Hochschule Ingolstadt, Ingolstadt, Germany Monika Klimontowicz, Aleksandra Nocoń University of Economics in Katowice, Katowice, Poland The new prudential standards implemented by the Basel Committee treat banks’ capital as a foundation for safety. The appropriate level of bank’s capital helps to manage all kinds of risks with the special attendance on credit risk. The adequate capital base enables absorbing losses and maintaining bank’s stability. The necessity to fulfill the capital requirements influences banks’ credit policy and, as a result, the access to companies’ external financing. The main purpose of the paper is to present the impact of the capital requirements implemented by Basel Committee (Basel III requirements) on companies’ access to external finance. The paper discusses the changes in credit standards, the companies’ external financing and formulates the prerequisites for the further development of companies’ external financing. The paper contains the empirical data for largest European euro area countries regarding the GDP. Keywords: equity regulations, capital adequacy, companies’ external financing, credit standards Introduction Since the beginning of the recent financial crisis, among different factors influencing banks’ market activity, the regulatory pressure is the most important one. Never before the scope and the scale of regulations has been so broad and comprehensive. Most of them focus on the adequate level of banks’ capital that is to be a guarantee of potential losses absorption and overall stability. The role of capital, especially equity capital, has been recognized from the very beginning. It has become a basis of prudential regulations since 30. last century (Marcinkowska, 2005). A milestone for the regulation was the introduction of a capital measurement system by Basel Committee in 1988. It was presented in the Basel Capital Accord (Basel I) and Basel Committee on Banking Supervision (1988) established a synthetic measure of the capital adequacy ratio (CAR) which is known as Cooke ratio (total capital ratio - TCR, capital to risk weighted assets ratio - CRAR). This ratio determined the level of capital that banks required for safe market activity and was defined as a relation between bank’s capital base (own funds, consisting of Tier I capital, as a basis to cover losses, and Tier II capital as supplementary capital for a bank) and risk-weighted assets. The level of this ratio should be at least 8% (Iwanicz-Drozdowska, 2012). The assets and non-balance sheet liabilities were divided into four classes according to risk weight (0%, 20%, 50%, and 100%). The system was quite simple but did not prevent varying the level of risk within the class (Marcinkowska, 2010). Günter Hofbauer, Prof. Dr. rer. pol., Business School, Technische Hochschule Ingolstadt. Email: guenter.hofbauer@thi.de. Monika Klimontowicz, Ph.D., Department of Banking and Financial Markets, University of Economics in Katowice. Aleksandra Nocoń, Ph.D., Department of Banking and Financial Markets, University of Economics in Katowice. DAVID PUBLISHING D