Banks were knowned to have volatile capital structure caused by their financial liquidity. The study of capital structure attempts to explain how listed firms utilise the mix of various forms of securities in order to finance investment. A positive image created in mind about bank if low risk involves the results of these consequences to improving the financial performance and good relationship between bank capital and bank performance. The capital structure decision plays an important role in the performance of a firm. One such difference is capital structure appears under the head shareholders fund and noncurrent liabilities. Debt comes in the form of bond issues or longterm notes. Impact of capital structure on bank financial performance of al ahli bank in saudi arabia by dr. If the capital markets and financing systems are not supportive of hostile takeovers, stockholder power will be diluted. Capital structure has been found to have impact on firm performance. Conversely, the entire equity and liabilities side shows the financial structure of the company. In other words, the paper attempts to estimate whether a high proportion of debt in the capital structure adversely impacts a firms financial performance and therefore the future growth of firms listed on karachi stock exchange 100 index. It is the employment of an asset source of finance for which.
Request pdf on sep 1, 2019, arie widyastuti and others published capital structure and bank performance find, read and cite all the research you need on researchgate. Research paper impact of capital structure on profitability of manufacturing companies in india s. Some of these factors may have a positive impact on the banks profitability while the others could have a negative impact. Objectives of the study the main objectives of this study are. To measure the capital structure, debt to total assets ratio and debt to equity ratios are used and to measure the financial performance, return on capital employed roce, net profit ratio np. Capital structure and bank performance request pdf. Impacts of capital structure on performance of banks in a. Simply the capital structure of a firm concerns the mix of debt and equity the firm uses in its operation. This paper aims to examine the impact of capital structure towards performance of two group of banks, conventional and islamic banks, by using profit efficiency approach. The paper analyses the influence of capital structure on the financial performance of banks in india. The impact of capital structure on banks performance. There is a significance impact of capital structure on. Studies into capital structureand performance have ignored. Under the agency costs hypothesis, a high leverage or a low equityasset ratio reduces the agency costs of outside equity and increases firm value.
Analysis of the capital structure and banks performance. A pdf version of a ubpr user guide which allows users to print out formulas for all ubpr concepts. This implies that capital structure do not impact banks performance that is, banks performance does not depend on their capital structure but rather it is capital structure that depends on banks. The ability of banks to carry out their stakeholders needs is tightly. The introductions of capital structure theory in 1958 provide tanzania commercial banks with an opportunity to improve their performance through maximizing profit. The impact of the global financial crisis on firms capital. This research had verified the existence of several negative relationships. The impact of capital structure on financial performance in. Berger board of governors of the federal reserve system washington, dc 20551 u. Despite risk neutrality, equity capital earns a higher expected return than direct investment in risky assets. The study used fixed effect regression model to estimate the relationship between the firm leverage and firm performance. Pdf the paper analyses the influence of capital structure on the financial performance of banks in india. The internal factors considered are related to the banks capital structure, liquidity, credit risk, loan portfolio, asset quality, and expense management aspects whereas the external factors are related to the. Finally, bank s capital structure has a pervasive impact on its performance.
Chapter iii concepts and theories of capital structure and profitability. To examine the effect of banks size and tangibility. The aim of the study was to assess the impact of capital structure on bank performance in tanzania. This paper examines these questions by relying on a. The study employs four performance indicators of return on equity, return on assets, net interest margin and cost to income ratio to determine bank performance. The choice on which capital structure to select is among the foremost important and decisive choices within the banks as a result they have an influence on the financial performance of the banks. It is the aim of this study to look upon the effect of capital structure to the. Abstract this paper seeks to examine the relationship between capital structure and bank financial performance.
Pdf capital structure choice is an important decision for a firm. Hypotheses the following hypothesis is formulated for the study h 0. The results showed that bank performance, which is measured by net profit, return on capital employed and net interest margin is. The relationship between capital structure and performance of. This study aims to determine the impact of postconsolidation capital structure on the financial performance of nigeria quoted banks. Jul 26, 2018 the difference between capital structure and financial structure is complicated. Capital structure impact on banking sector performance in. The impact of the global financial crisis on firms. The relationship between capital requirement and financial. The aim of this paper is to examine the impact of capital structure on profitability of commercial banks in ghana. The capital structure of banks and practice of bank restructuring. To evaluate the interrelationship between capital structure and performance to determine the determinants of a capital structure 5. Capital structure and financing decisions aswath damodaran stern school of business.
In examining the impact of capital structure on firm performance, two. This study will make effort at clearing the air as regard the determinants of capital structure in banks with evidence drawn from the nigerian banking sector. Difference between capital structure and financial structure. There is a negative relationship between capital structure and financial performance. Influence of capital adequacy ratio on financial performance of commercial bank in a research conducted among international banks, berger and bouwman 20 found a direct. The capital structure of banks and practice of bank restructuring eight case studies on current bank restructurings in europe final report study commissioned by center for financial studies university of frankfurt by hansjoachim dubel finpolconsult, berlin assistance malte daniels ioana bejan berlin october 8, 20. The capital structure of banks and practice of bank.
Impact of capital structure on banks performance semantic scholar. Pdf capital structure and financial performance in. The impact of the global financial crisis on firms capital structure asli demirguckunt maria soledad martinezperia. Pdf capital structure and financial performance of banks. Capital structure is essentially concerned with how the firm decides to divide its cash flows into two broad components, a fixed component that is earmarked to meet the obligations toward debt capital and a residual component that belongs to equity shareholdersp. There are two broad views on the impact of capital structure on the performance of firms, while one asserts the significance of capital structure in determining firms. There is a significance impact of capital structure on financial performance. Theory suggests that a financial crisis may impact the capital structure of firms through different channels.
The study used panel data for the period of 5 years and 38 banks operating in the country. Pdf abstract the purpose of this paper is to examine the effect of capital structure on banks performance in nigeria using key variables. Empirically, limited evidence exists on bank capital structure. Therefore, there have been many studies inspecting the rapport of capital structure with the performance of firms, although the findings of these studies are inconclusive. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. This paper examines the impact of capital structure on financial performance of nigerian firms using a sample of thirty nonfinancial firms listed on the nigerian stock exchange during the seven year period, 2004 2010.
The relationship between capital structure and performance. Watch this short video to quickly understand the main concepts covered in this guide, including the definition of capital structure, what is the optimal capital structure, and the calculation of the weighted average cost of capital wacc. To evaluate the effect of debt ratio, total debt to equity and loan to deposit in the capital structure on financial performance of selected commercial banks. Another theory is the tradeoff theory of capital structure which explains the level of leverage of the bank, that is whether the bank is. They concluded that the capital structure of the firms has a. So it is very important to have a clear idea about these factors and cost of different sources in the banking industry. Capital structure refers to the firms financing mix mainly debt and equity used to finance the firm. Pdf the relationship between capital structure and commercial. This theory insists that banks should do a costbene. A new approach to testing agency theory and an application to the banking industry allen n.
The empirical results show that h 0 is rejected because there is positive relationship in capital structure and financial performance. To investigate the relationship between capital structure and financial performance of selected commercial banks in ethiopia. Also bank leverage has a significant negative impact on its return on asset. Abstract the aim of this paper is to examine the impact of capital structure on profitability of commercial banks in ghana. This research aims to establish the relationship between capital structure and financial performance in 196 romanian companies listed on the bucharest stock exchange and operating in the manufacturing sector, over a period of eightyears 20032010. The specific objective of the study was to evaluate the relationship between capital requirement and financial performance of. This result suggests that agency issues may lead to higher debt in the capital structure than there should be. The difference between capital structure and financial structure is complicated. Abstract the purpose of this paper is to examine the effect of capital structure on banks performance in nigeria using key variables such as return on assets roa and return on equity roe. The impact of the global financial crisis on firms capital structure. Capital structure, credit risk, loan portfolio, asset quality and expense management introduction the profitability of a bank may be influenced by certain factors.
They can either use high capital ratios which increase the soundness and safety of the bank and lower the required return by investors, or depend on deposits and islamic. By analyzing capital structure and bank performance, there is the possibility of endogeneity problem between capital structure and bank performance. The study was guided by the, economic theory of regulation, the liquidity theory and agency theory. Sep 02, 2014 an ibs management must carefully decide the appropriate mix of debt and equity, i. Determinants of capital structure in nigerian banking sector. Bank performance indicators in experimental studies in evaluation of the banks performance issue has been used by several factors. By new technologies develop then the productivity of any bank increase and shown good results. The results show that the capital structure of banks in africa is statistically insignificant.
Capital structure chapter 15 and chapter 16 contents i. As newcomers to the markets, ibs are facing a tradeoff. The study covers a period of five years from 2011 to 2015 and 21 banks are selected for the study. This study adds to existing literatures to verify the claim of traditional theory of capital structure. The empirical analysis of the impact of bank capital. Impacts of capital structure on performance of banks. It is problem to find out the relationship significant or not between capital structure and profitability muhammad raghib zafar, impact of. Does capital structure matter on performance of banks. The impact of the basel 3 capital requirements on the. Capital structure and financial performance have the negative relationship. With regard to the subject of in this research, in the following, we will explain the bank performance indicators and capital structure, then will describe the relationship between the two. The study is to find the different determinant of capital structure in the banking industry and also to determine the impact of change in capital structure of the bank on its performance over the period of time. This paper aims to examine the effect of capital structure on islamic banks ibs performance to provide guidance to finance managers for raising capital funds. Empirical evidence from ghana james ntiamoah doku, fred agbenya kpekpena and prince yeboah boateng abstract.
Prepared by asli demirguckunt, enrica detragiache, and ouarda merrouche1. The study used a sample of 21 commercial banks over the period 20002014 using panel corrected standard errors and twostage. The capital structure is negatively related with banks performance in pakistan. Deposits and bank capital structure abstract in a model with bankruptcy costs and segmented deposit and equity markets, we endogenize the cost of equity and deposit. Totally different writers have different view over the weight of capital structure on the financial performance of commercial banks. Some researcher debate on variable which use in the capital structure on banking performance such as. This working paper should not be reported as representing the views of the imf. This study was aimed at ascertaining the effect of capital structure on commercial banks performance in nigeria for the period 2012 to 2016. The impact of capital structure on firms performance in. Panel data for the selected firms were generated and analyzed using ordinary least squares ols as a method of estimation. The study used a sample of 21 commercial banks over the period 20002014 using. This study shall also address the endogeneity problem if it exists. The aim of this paper is to examine the impact of capital structure on pro.
The views expressed in this working paper are those of the authors and do not necessarily represent. In this sample, the money provided by shareholder rabbulmal is clearly disclosed to generate income that may increase the banks performance. This chapter also discusses the arguments and theories which are held in the literature about the impact that an increase of the. Result of this study validated a positive relationship factor of capital structure and performance of banking industry. Impact of capital structure on bank financial performance of. Pdf capital structure and financial performance in nigeria. Bank consolidation in nigeria has increased bank equity capital against debt. The impact of capital structure on firms performance in nigeria. The results show that bank capital structure measured as capital.
The impact of capital structure on financial performance. Our results showed that a firms capital structure had a significantly negative impact on the firms performance measures, in both the accounting and markets measures. During a crisis, as uncertainty and risk rise and expected returns decline, both lenders and borrowers become reluctant to lock. Pdf capital structure and banks performance in nigeria. The study used profit before tax as a dependent variable and two capital structure variables equity and debt as. Impact of capital structure on firms profitability and.
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