| Title : | Impact of capital structure on cost of capital:comprehensive study of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Priyanka Poudel, Author | | Publication Date: | 2017 | | Pagination: | 110p. | | Size: | GRP/Thesis | | Accompanying material: | 8/B | | Languages : | English | | Descriptors: | Capital investments
| | Class number: | 332.041 | | Abstract: | Financial decisions include long term financing and short term financial decisions. The long-term decisions are mode of capital sourcing and dividend decisions while the short-term financing decisions involve liquidity decisions. The financial managers have key responsibility of determining the optimal mix of debt and equity that will ensure maximization of shareholders (Maina & Kondongo, 2013).In other words, all the banks are forced to operate closer to the best practice or efficient production function. Increase in competition will result in greater risk-taking behavior due to the fact that market power of banks is reduced and their charter values are decreased. The determination of cost of capital plays more important role for the purpose of counterbalance the risk (Bas et al., 2009).
The major objective of the study is to examine the impact of capital structure on cost of capital of Nepalese commercial banks. The study is based on secondary data of 18 commercial banks with 126 observations for the period of 2008/09 to 2014/15. The main source of data includes various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and Annual Reports of selected commercial banks. The pooled cross-sectional data analysis has been undertaken from the study.The research design adopted in this study is descriptive and causal comparative research design as it deals with the impact of capital structure variables on cost of capital of Nepalese commercial banks.
The result shows that MBL has highest average cost of equity, KBL has the highest average cost of debt and KBL has the highest average WACC among the selected commercial banks throughout the study period.Similarly, the average long term debt ratio is highest for NCC (1.92 times), average short term debt ratio is highest for ADBL (0.11 times), average total debt ratio is highest for NCC (2.01 times), average debt to equity is highest for NCC (19.58 times), average firm size is highest for NIBL (Rs. 24.97 million) and average assets growth rate is highest for SBL(26.59 percent).
The descriptive statistics for the selected Nepalese commercial banks reveals that the average cost of debt, cost of equity, weighted average cost of capital, long term debt ratio, short term debt ratio, total debt ratio, debt to equity, firm size is 3.38 percent, 6.52percent, 5.32 percent, 3.25 times,2.11 times, 1.33 times, 7.42 times, Rs.2.43 million and 1.43 percent respectively.
The result reveals that weighted average cost of capital has positive correlation with short term debt ratio and assets growth rate. Similarly, weighted average cost of capital has negative correlation with long term debt ratio, total debt ratio, debt to equity and firm size. Cost of debt has positive correlation with assets growth rate. Likewise, cost of debt has negative correlation with short term debt ratio and long term debt on ratio. On the other hand, total debt ratio, debt to equity and firm size has negative correlation with cost of debt. Cost of equity has positive correlation with debt to equity, firm size and assets growth rate and however, long term debt ratio, short term debt ratio and total debt ratio are negatively correlated to cost of equity.
The regression results show that weighted average cost of capital has negative relation with long term debt ratio, debt to equity and firm size whereas positive relation with short term debt ratio, total debt ratio and assets growth rate. Similarly, cost of debt has negative relation with short term debt ratio, debt to equity and total debt ratio and positive relation with total debt ratio, firm size and assets growth. Likewise, the result also reveals that cost of equity has negative relation with for short term debt ratio and total debt ratio whereas positive relation with long term debt ratio, firm size, assets growth rate and debt to equity.
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Impact of capital structure on cost of capital:comprehensive study of Nepalese commercial banks [printed text] / Priyanka Poudel, Author . - 2017 . - 110p. ; GRP/Thesis + 8/B. Languages : English | Descriptors: | Capital investments
| | Class number: | 332.041 | | Abstract: | Financial decisions include long term financing and short term financial decisions. The long-term decisions are mode of capital sourcing and dividend decisions while the short-term financing decisions involve liquidity decisions. The financial managers have key responsibility of determining the optimal mix of debt and equity that will ensure maximization of shareholders (Maina & Kondongo, 2013).In other words, all the banks are forced to operate closer to the best practice or efficient production function. Increase in competition will result in greater risk-taking behavior due to the fact that market power of banks is reduced and their charter values are decreased. The determination of cost of capital plays more important role for the purpose of counterbalance the risk (Bas et al., 2009).
The major objective of the study is to examine the impact of capital structure on cost of capital of Nepalese commercial banks. The study is based on secondary data of 18 commercial banks with 126 observations for the period of 2008/09 to 2014/15. The main source of data includes various issues of Banking and Financial Statistics, Quarterly Economic Bulletin, Bank Supervision Report published by Nepal Rastra Bank and Annual Reports of selected commercial banks. The pooled cross-sectional data analysis has been undertaken from the study.The research design adopted in this study is descriptive and causal comparative research design as it deals with the impact of capital structure variables on cost of capital of Nepalese commercial banks.
The result shows that MBL has highest average cost of equity, KBL has the highest average cost of debt and KBL has the highest average WACC among the selected commercial banks throughout the study period.Similarly, the average long term debt ratio is highest for NCC (1.92 times), average short term debt ratio is highest for ADBL (0.11 times), average total debt ratio is highest for NCC (2.01 times), average debt to equity is highest for NCC (19.58 times), average firm size is highest for NIBL (Rs. 24.97 million) and average assets growth rate is highest for SBL(26.59 percent).
The descriptive statistics for the selected Nepalese commercial banks reveals that the average cost of debt, cost of equity, weighted average cost of capital, long term debt ratio, short term debt ratio, total debt ratio, debt to equity, firm size is 3.38 percent, 6.52percent, 5.32 percent, 3.25 times,2.11 times, 1.33 times, 7.42 times, Rs.2.43 million and 1.43 percent respectively.
The result reveals that weighted average cost of capital has positive correlation with short term debt ratio and assets growth rate. Similarly, weighted average cost of capital has negative correlation with long term debt ratio, total debt ratio, debt to equity and firm size. Cost of debt has positive correlation with assets growth rate. Likewise, cost of debt has negative correlation with short term debt ratio and long term debt on ratio. On the other hand, total debt ratio, debt to equity and firm size has negative correlation with cost of debt. Cost of equity has positive correlation with debt to equity, firm size and assets growth rate and however, long term debt ratio, short term debt ratio and total debt ratio are negatively correlated to cost of equity.
The regression results show that weighted average cost of capital has negative relation with long term debt ratio, debt to equity and firm size whereas positive relation with short term debt ratio, total debt ratio and assets growth rate. Similarly, cost of debt has negative relation with short term debt ratio, debt to equity and total debt ratio and positive relation with total debt ratio, firm size and assets growth. Likewise, the result also reveals that cost of equity has negative relation with for short term debt ratio and total debt ratio whereas positive relation with long term debt ratio, firm size, assets growth rate and debt to equity.
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