Capital Structure and Profitability of Commercial Banks in Nepal
Downloads
This study seeks to examine the relationship between the capital structure and the profitability of commercial Banks in Nepal. In this connection, 18 Nepalese commercial banks were selected as study samples and their financial data were gathered from NRB BI Statistics and Bank Supervision Report for the period of 2010-2019. Return on Equity was used as indicator of profitability while short term debt, long term debt, deposits and total debt to assets ratio were used as a proxy of capital structure along with the control variables of bank size and assets growth. Results showed that more than 40 percent bank profitability measured by return on equity is predicted by the explanatory –capital structure variables. It is also revealed that return on equity is insignificantly positively related with long term debt and deposits whereas it is insignificant negative with short term debt and total debt. In all regression models, profitability is significantly positively related with banks size indicating that larger the size of the bank, higher is the return for shareholders.
Abor J. (2005). The effect of capital structure on profitability: empirical analysis of listed firm in Ghana. Journal of Risk Finance, 6(5),438-445. https://doi.org/10.1108/15265940510633505
Alsaeed, K. (2006). The association between firm‐specific characteristics and disclosure: The case of Saudi Arabia. Managerial Auditing Journal, 21(5), 476-496.
https://doi.org/10.1108/02686900610667256
Amidu, M. (2007). Determinants of capital structure of banks of Ghana: an empirical approach. Baltic Journal of Management, 2(1),67-79. https://doi.org/10.1108/17465260710720255
Baral, K. (2004). Determinants of capital structure: a case study of listed companies of Nepal. The Journal of Nepalese Business Studies, 1(1), 1-13. https://doi.org/10.3126/jnbs.v1i1.34.
Barclay, M. & Smith, C. (2005). The capital structure puzzle: the evidence revisited. Journal of Applied Corporate Finance, 17,(1), 8-17. https://doi.org/10.1111/j.1745-6622.2005.012_2.x
Buser, S.A., Chen, A.H. & Kane, E.J. (1981). Federal deposit insurance, regulatory policy and optimal bank capital. Journal of Finance 35, 51-60. https://doi.org/10.1111/j.1540-6261.1981.tb03534.x
Caesar, G., & Holmes, S. (2003). Capital structure and financing of SMEs: Australian evidence. Journal of Accounting and Finance 43(2), 123-147. 10.1111/1467-629X.t01-1-00085
Fama, E.F. & French, K.R. (1998). Taxes, financing decisions, and firm value. Journal of Finance, 53(3), 819-943.
https://doi.org/10.1111/0022-1082.00036.
Fox, J. (1991). Regression diagnostics. Thousand oaks’, CA: Stage publication, Qualitative applications in the social sciences, 79. https://dx.doi.org/10.4135/9781412985604
Gajurel, D. P.(2005). Capital structure management in Nepalese enterprises. Master’s Degree Thesis, Kathmandu: Faculty of Management, Tribhuvan University.
Gill, A., Nahum, B. & Mathur, N. (2011). The effect of capital structure on profitability: evidence from the United States. International Journal of Management, 28(4),1,3-15.
https://www.researchgate.net/publication/281004540
Graham, J.R. (2000). How big are the tax benefits of debt? Journal of Finance, 55, pp. 1901-41. 10.1111/0022-1082.00277
Grossman, S. J. & Hart, O.D. (1983). Corporate financial structure and managerial incentives. Economics of Information and Uncertainty, University of Chicago Press, 259-298.
https://ssrn.com/abstract=578641
Hall, G. C., Hutchinson, P. J. & Michaelas, N. (2004). Determinants of the capital structures of European SMEs. Journal of Business Finance & Accounting, 31(5, 6), 711–728. 10.1111/j.0306-686X.2004.00554.x
Hirshleifer, J. (1966). Investment decision under uncertainty: application of the state performance approach. Quarterly Journal of Economics, 80(2), 252-277. 10.2307/1880692
KC, B.K. (1994). The financing of corporate growth: a case study of Nepal. Doctoral Thesis, New Delhi: University of Delhi.
Kester, W.C. (1986). Capital and ownership structure: a comparison of United States and Japanese manufacturing corporations. Financial Management, 15 (1), 5-16.
https://scirp.org/reference/referencespapers.aspx?referenceid=779129
Khan, M.Y. & Jain, P.K. (1997). Financial management. Tata McGraw Hill Publishing Company Limited, New Delhi, (2nd ed.), 473, 517-518.
Modigliani, F. & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261-297.
Modigliani, F. & Miller, M. H. (1963). Corporate income taxes and the cost of capital: a correction. The American Economic Review, 53(3), 433-443.
Myers, S.C., Majluf, N.S. (1984). Corporate financing and investment decisions when firms have information that investors do not. Journal of Financial Economics, 13(2), 187-221. https://doi.org/10.1016/0304-405X(84)90023-0
Najjar, N., & Petrov, K. (2011). Capital structure of insurance companies in Bahrain. International Journal of Business and Management, 6(11), 138–142. 10.5539/ijbm.v6n11p138
Ooi, J. (1999). The determinants of capital structure: evidence on UK property companies. Journal of Property Investment & Finance, 17(5), 464-480. https://doi.org/10.1108/14635789910294886.
Petersen, M. & Rajan, R. (1994a). The benefits of lending relationships: evidence from small business data. Journal of Finance, 49(1), 3–37.
https://doi.org/10.1111/j.15406261.1994.tb04418.x
Pradhan, R.S. & Ang, J.S. (1994). A comparison of financial management practices in Nepal among government-owned, publicly-traded and privatively-held firms. Studies in the Financial Markets of the Pacific Basin, 11, 139-163.
Rajan, R. G. & Zingale, L. (1995). What do we know about capital structure? Some evidences from international data. Journal of Finance, 50(5), 1421-1460. https://doi.org/10.1111/j.1540-6261.1995. tb05184.x
Ross, S. (1977). The determination of financial structure: an incentive signaling approach. The Bell Journal of Economics, 8(1), 23-40.
http://links.jstor.org/sici?sici=0361-915X%2819 7721%298%3A1%3C23%3ATDOFST%3E2.0.CO%3B2-Q
Saunders, M., Lewis, P. and Thornhill, A. (2007). Research Methods for Business Students, (4th ed.) Prentice Hall, UK.
Shrestha, M.K. (1985). Analysis of capital structure in selected public enterprises. Nepalese Journal of Public Administration, 16(2), 41-57.
Shubita, M.& Jaafer, A. (2012).The relationship between capital structure and profitability. International Journal of Business and Social Science, 3(15), 105-112.
Stiglitz, J. (1969). A re-examination of M-M theorem. American Economic Review, 59(5),784-793. https://www.jstor.org/stable/1810676
Taub, A.J. (1975). Determinants of the firm’s capital structure. Review of Economics and Statistics, 57(4),410-416.
https://www.jstor.org/stable/1935900
Titman, S. & Wessels, R. (1988). The determinants of capital structure choice. Journal of Finance, 43(1), 1-19. https://doi.org/10.1111/j.1540-6261.1988.tb02585.x
Wang, H. (2010). Capital structure and corporate performance: evidences from Chinese small and medium-sized firms. IEEE, 1-4. 10.1109/ICEEE.2010.5660487
Watson, D. and Head, A. (2007). Corporate Finance-Principles and Practices. (4th ed.), FT Prentice Hall, UK.
