| Title : | Determinants of capital structure: a comparative study of public banks, joint venture banks and private banks. | | Material Type: | printed text | | Authors: | Dipesh Raj Lamichhane, Author | | Publication Date: | 2017 | | Pagination: | 119p. | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Capital structure
| | Class number: | 658.1522 | | Abstract: | Capital structure is the composition of debt and equity of a company used to finance its assets. Companies which do not formally plan their capital structures are likely to have uneconomical and imbalanced capital structures and could face formidable difficulties in raising capital on favorable terms in long-run (Wippern, 1966). The capital structure of a firm is a mixture of different securities. In general, firms can choose among many alternative capital structures. The capital structure decision is the vital one since the financial performance of an enterprise is directly affected by such decision. In reality, establishing an optimal capital structure is a difficult task.
The study of capital structure attempts to explain the mix of securities and financing sources used by corporations to finance real investments (Myers, 1977). A firm can choose among many alternative capital structures. Rajan and Zingales (1995) found that the determinants of capital structure that have been reported for the U.S. (size, growth, profitability and tangible assets) are important in other countries as well. Therefore, it is important to test the relationship between bank specific variables and capital structure of the firm to make sound capital structure decisions. The study revealed that tax reserves and profitability have negative relationship with capital structure while size, growth opportunities and assets structure have positive relationship with capital structure (Sogorb, 2005). Likewise, Akhtar (2005) found that growth, profitability and size are found to be significant determinants of leverage. Gaud et al. (2005) revealed that size and assets structure are positively related to leverage while profitability and growth are found negatively related to leverage. Cespedes et al. (2010) carried out investigation on the capital structure and ownership in Latin America. The study concluded that leverage firms and ownership have a strong positive relationship. The study also showed that there is a positive relationship between growth and leverage but a negative relation exists between leverage and profitability. Similarly, Gajurel (2005) found that assets structure and size are positively related to leverage whereas liquidity, risk, growth, non-debt tax shield are negatively related to leverage. Likewise, Sharma et al. (2015) revealed that firm size and non-debt tax shield are positively related to leverage whereas return on assets, tangibility, capital expenditure and liquidity are negatively related to leverage.
The major objective of this study is to identify the determinants of capital structure in Nepalese commercial banks.The results are based on the secondary data and contain the sample of 22 commercial banks of Nepal during the period of 2009/10 to 2014/15. Out of total sampled banks, 3 banks are public, 5 banks are joint venture and 14 banks are private commercial banks. The data has been collected from the banking and financial statistics and bank supervision report published by Nepal Rastra Bank and annual reports of selected commercial banks. The research design adopted in this study is causal comparative type as it deals with the relationship between capital structure and profitability.
The result shows that SBI has highest debt equity ratio of 14.12 times, NBL has highest average debt asset ratio (103.83 percent) among the selected commercial banks over the study period. The study shows the increasing trend of TDE for private banks, joint venture banks and public banks. Similarly, it shows the decreasing trend of TDA for private banks, joint venture banks and public banks. Overall, the study shows that RBBL has highest total assets (Rs.105.57 in Billion), ADBL has highest average return on assets (3.03 percent), NMB has highest average tangibility (5.33 percent), SBL has highest average assets growth rate ratio (32.31 percent) and NMB has highest average liquidity (6.94 percent).
The descriptive statistics for public banks shows that the average total debt equity is -16.26 times, average total debt assets is 96.14 percent, average firm size is Rs.81.68 Billion, average return on assets is 2.05 percent, average tangibility is 1.10 percent, average assets growth rate is 11.54 percent and average liquidity is 1.56 percent. Similarly, the descriptive statistics for joint venture banks shows that the average total debt equity is 11.77 times, average total debt assets is 91.99 percent, average firm size is Rs. 60.25 Billion, average return on assets is 1.94 percent, average tangibility is 1.11 percent, average assets growth rate is 14.19 percent and average liquidity is 3.76 percent. Likewise, the descriptive statistics for private banks shows that average total debt equity is 9.66 times, average total debt assets is 89.31 percent, average firm size is Rs.31.84 Billion, average return on assets is 1.45 percent, average tangibility is 5.78 percent, average assets growth rate is 17.99 percent and average liquidity is 3.41 percent.
The correlation matrix for public banks reveals that firm size and tangibility are positively correlated to total debt equity while return on assets, assets growth rate and liquidity are negatively correlated to total debt equity. Firm size and tangibility are positively correlated to total debt assets while return on assets, assets growth rate and liquidity are negatively correlated to total debt assets. Similarly, the correlation matrix for joint venture banks reveals that firm size, tangibility and assets growth rate are positively correlated to total debt equity while return on assets and liquidity are negatively correlated to total debt equity. Firm size, tangibility and assets growth rate are positively correlated to total debt assets while return on assets and liquidity are negatively correlated to total debt assets. Likewise, correlation matrix for private banks reveals that firm size and tangibility are positively correlated to total debt equity while return on assets, assets growth rate and liquidity are negatively correlated to total debt equity. Firm size and tangibility are positively correlated to total debt assets while return on assets; assets growth rate and liquidity are negatively correlated to total debt assets.
The regression analysis reveals that firm size and tangibility have positive impact on total debt equity whereas return on assets, assets growth rate and liquidity have negative impact on total debt equity for public banks. Similarly, firm size, tangibility and assets growth rate have positive impact on total debt equity whereas return on assets and liquidity have negative impact on total debt equity for joint venture banks. Likewise, firm size has positive impact on total debt equity whereas return on assets, tangibility, assets growth rate and liquidity have negative impact on total debt equity for private banks. Moreover, firm size, tangibility and assets growth rate have positive impact on total debt assets whereas return on assets and liquidity have negative impact on total debt assets for public banks. Similarly, firm size and tangibility have positive impact on total debt assets whereas return on assets and assets growth rate have negative impact on total debt assets for joint venture banks. Likewise, firm size and tangibility have positive impact on total debt assets whereas return on assets, assets growth rate and liquidity have negative impact on total debt assets for private banks.
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Determinants of capital structure: a comparative study of public banks, joint venture banks and private banks. [printed text] / Dipesh Raj Lamichhane, Author . - 2017 . - 119p. ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Capital structure
| | Class number: | 658.1522 | | Abstract: | Capital structure is the composition of debt and equity of a company used to finance its assets. Companies which do not formally plan their capital structures are likely to have uneconomical and imbalanced capital structures and could face formidable difficulties in raising capital on favorable terms in long-run (Wippern, 1966). The capital structure of a firm is a mixture of different securities. In general, firms can choose among many alternative capital structures. The capital structure decision is the vital one since the financial performance of an enterprise is directly affected by such decision. In reality, establishing an optimal capital structure is a difficult task.
The study of capital structure attempts to explain the mix of securities and financing sources used by corporations to finance real investments (Myers, 1977). A firm can choose among many alternative capital structures. Rajan and Zingales (1995) found that the determinants of capital structure that have been reported for the U.S. (size, growth, profitability and tangible assets) are important in other countries as well. Therefore, it is important to test the relationship between bank specific variables and capital structure of the firm to make sound capital structure decisions. The study revealed that tax reserves and profitability have negative relationship with capital structure while size, growth opportunities and assets structure have positive relationship with capital structure (Sogorb, 2005). Likewise, Akhtar (2005) found that growth, profitability and size are found to be significant determinants of leverage. Gaud et al. (2005) revealed that size and assets structure are positively related to leverage while profitability and growth are found negatively related to leverage. Cespedes et al. (2010) carried out investigation on the capital structure and ownership in Latin America. The study concluded that leverage firms and ownership have a strong positive relationship. The study also showed that there is a positive relationship between growth and leverage but a negative relation exists between leverage and profitability. Similarly, Gajurel (2005) found that assets structure and size are positively related to leverage whereas liquidity, risk, growth, non-debt tax shield are negatively related to leverage. Likewise, Sharma et al. (2015) revealed that firm size and non-debt tax shield are positively related to leverage whereas return on assets, tangibility, capital expenditure and liquidity are negatively related to leverage.
The major objective of this study is to identify the determinants of capital structure in Nepalese commercial banks.The results are based on the secondary data and contain the sample of 22 commercial banks of Nepal during the period of 2009/10 to 2014/15. Out of total sampled banks, 3 banks are public, 5 banks are joint venture and 14 banks are private commercial banks. The data has been collected from the banking and financial statistics and bank supervision report published by Nepal Rastra Bank and annual reports of selected commercial banks. The research design adopted in this study is causal comparative type as it deals with the relationship between capital structure and profitability.
The result shows that SBI has highest debt equity ratio of 14.12 times, NBL has highest average debt asset ratio (103.83 percent) among the selected commercial banks over the study period. The study shows the increasing trend of TDE for private banks, joint venture banks and public banks. Similarly, it shows the decreasing trend of TDA for private banks, joint venture banks and public banks. Overall, the study shows that RBBL has highest total assets (Rs.105.57 in Billion), ADBL has highest average return on assets (3.03 percent), NMB has highest average tangibility (5.33 percent), SBL has highest average assets growth rate ratio (32.31 percent) and NMB has highest average liquidity (6.94 percent).
The descriptive statistics for public banks shows that the average total debt equity is -16.26 times, average total debt assets is 96.14 percent, average firm size is Rs.81.68 Billion, average return on assets is 2.05 percent, average tangibility is 1.10 percent, average assets growth rate is 11.54 percent and average liquidity is 1.56 percent. Similarly, the descriptive statistics for joint venture banks shows that the average total debt equity is 11.77 times, average total debt assets is 91.99 percent, average firm size is Rs. 60.25 Billion, average return on assets is 1.94 percent, average tangibility is 1.11 percent, average assets growth rate is 14.19 percent and average liquidity is 3.76 percent. Likewise, the descriptive statistics for private banks shows that average total debt equity is 9.66 times, average total debt assets is 89.31 percent, average firm size is Rs.31.84 Billion, average return on assets is 1.45 percent, average tangibility is 5.78 percent, average assets growth rate is 17.99 percent and average liquidity is 3.41 percent.
The correlation matrix for public banks reveals that firm size and tangibility are positively correlated to total debt equity while return on assets, assets growth rate and liquidity are negatively correlated to total debt equity. Firm size and tangibility are positively correlated to total debt assets while return on assets, assets growth rate and liquidity are negatively correlated to total debt assets. Similarly, the correlation matrix for joint venture banks reveals that firm size, tangibility and assets growth rate are positively correlated to total debt equity while return on assets and liquidity are negatively correlated to total debt equity. Firm size, tangibility and assets growth rate are positively correlated to total debt assets while return on assets and liquidity are negatively correlated to total debt assets. Likewise, correlation matrix for private banks reveals that firm size and tangibility are positively correlated to total debt equity while return on assets, assets growth rate and liquidity are negatively correlated to total debt equity. Firm size and tangibility are positively correlated to total debt assets while return on assets; assets growth rate and liquidity are negatively correlated to total debt assets.
The regression analysis reveals that firm size and tangibility have positive impact on total debt equity whereas return on assets, assets growth rate and liquidity have negative impact on total debt equity for public banks. Similarly, firm size, tangibility and assets growth rate have positive impact on total debt equity whereas return on assets and liquidity have negative impact on total debt equity for joint venture banks. Likewise, firm size has positive impact on total debt equity whereas return on assets, tangibility, assets growth rate and liquidity have negative impact on total debt equity for private banks. Moreover, firm size, tangibility and assets growth rate have positive impact on total debt assets whereas return on assets and liquidity have negative impact on total debt assets for public banks. Similarly, firm size and tangibility have positive impact on total debt assets whereas return on assets and assets growth rate have negative impact on total debt assets for joint venture banks. Likewise, firm size and tangibility have positive impact on total debt assets whereas return on assets, assets growth rate and liquidity have negative impact on total debt assets for private banks.
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