| Title : | Firm-specific and macro-economic determinants of corporate structure: a case of Nepalese commercial banks | | Material Type: | printed text | | Authors: | Poonam Khadka, Author | | Publication Date: | 2016 | | Pagination: | 105p. | | Size: | GRP/Thesis | | Accompanying material: | 7/B | | Languages : | English | | Descriptors: | Macroeconomics
| | Class number: | 332.632 | | Abstract: | Capital structure refers to permanent financing of the firm that includes mix of
company’s long-term debt, specific short term debt, common equity and preferred
equity. The capital structure is about how a firm finances its overall operations and its
growth by using different sources of fund. Companies which do not formally plan
their capital structure are likely to have uneconomical and imbalanced capital
structure and could face difficulties in raising capital in long run (Wippern, 1966).
However, capital structure remained as a subject of controversy in the literature of
modern corporate finance. Initially, Modigliani and Miller (1958) argued that under
certain assumptions, a firm’s overall cost of capital, and therefore, its value, is
independent of the capital structure. The argument is that in a perfect capital market,
firms and individuals can borrow at the same interest rate and hence investment
decisions are not affected by financing decisions (Modigliani & Miller, 1958). The
irrelance theory states that if a company’s investment policy is given in a perfect
market (without taxes, transaction costs, bankrutcy costs, etc), the level of debt in a
firms capital structure will not affect the value of a firm (Chen, 2004). The theory of
Modigliani and Miller (1958) was theoritically very sound but was based on the
assumptions of perfect capital market and absence of corporate income taxes, which
were not valid in reality. This study focus on dependent variable capital structure
which consists of three proxies: ratio of total debt to total assets, ratio of long term
debt to total assets and ratio of short term debt to total assets.
The major purpose of the study is to examine the firm-specific and macroeconomic
determinants of corporate capital structure of Nepalese commercial banks. The
specific objectives of this study are (a) to examine the structure and pattern of bank
specific factors, macroeconomic factors in Nepalese commercial banks (b) to
determine the structure and pattern of capital structure of Nepalese commercial banks
(c) to find out the relation of selected bank specific and macroeconomic factors with
capital structure of Nepalese commercial banks (d) to analyze the most important
factors affecting capital structure in context of Nepalese commercial banks.
The study is based on descriptive and causal-comparative research designs. The
descriptive research design has been adopted to undertake fact-finding operation
searching for adequate information about the impact of bank size, assets growth,
viii
liquidity ratio, profitability, net worth, gross domestic product and inflation on
corporate capital structure of Nepalese commercial banks. Moreover, this study also
emphasizes on cause and effect relationship between corporate capital structure and
its determinants in Nepalese context. This study is based on the secondary data which
are gathered from 20 commercial banks in Nepal with 140 total number of
observations for the study period 2008-2014. The main sources of data are official
website of concern commercial banks, annual reports of commercial banks,
Supervision Reports published by NRB, annual reports of respective banks and
published journals along with the publications of the World Bank.
The result shows that average total debt to total assets is highest for SBI and lowest
for ADBL. The average profitability is highest for NBBL and lowest for MBL. The
average liquidity ratio is highest for NMB and lowest for HBL. The study reveals that
bank size and assets growth have positive relationship with total debt to total assets.
Liquidity ratio, profitability and net worth are negatively related to the total debt to
total assets. It indicates that increase in liquidity ratio, profitability and net worth lead
to decrease in total debt to total assets. Regarding the macroeconomic variable, the
study found that to total debt to total assets is positively related to gross domestic
product growth and inflation. The regression result shows that beta coefficients are
positive for bank size, assets growth, gross domestic product and inflation with total
debt to total assets; whereas beta coefficients are negative for liquidity ratio,
profitability and net worth. However, the beta coefficients are significant for bank
size, liquidity ratio, profitability, net worth and gross domestic product growth.
The major conclusion of the study is that bank size, liquidity ratio, profitability, net
worth, gross domestic product growth plays a significant role in determining the
corporate capital structure of Nepalese commercial banks. |
Firm-specific and macro-economic determinants of corporate structure: a case of Nepalese commercial banks [printed text] / Poonam Khadka, Author . - 2016 . - 105p. ; GRP/Thesis + 7/B. Languages : English | Descriptors: | Macroeconomics
| | Class number: | 332.632 | | Abstract: | Capital structure refers to permanent financing of the firm that includes mix of
company’s long-term debt, specific short term debt, common equity and preferred
equity. The capital structure is about how a firm finances its overall operations and its
growth by using different sources of fund. Companies which do not formally plan
their capital structure are likely to have uneconomical and imbalanced capital
structure and could face difficulties in raising capital in long run (Wippern, 1966).
However, capital structure remained as a subject of controversy in the literature of
modern corporate finance. Initially, Modigliani and Miller (1958) argued that under
certain assumptions, a firm’s overall cost of capital, and therefore, its value, is
independent of the capital structure. The argument is that in a perfect capital market,
firms and individuals can borrow at the same interest rate and hence investment
decisions are not affected by financing decisions (Modigliani & Miller, 1958). The
irrelance theory states that if a company’s investment policy is given in a perfect
market (without taxes, transaction costs, bankrutcy costs, etc), the level of debt in a
firms capital structure will not affect the value of a firm (Chen, 2004). The theory of
Modigliani and Miller (1958) was theoritically very sound but was based on the
assumptions of perfect capital market and absence of corporate income taxes, which
were not valid in reality. This study focus on dependent variable capital structure
which consists of three proxies: ratio of total debt to total assets, ratio of long term
debt to total assets and ratio of short term debt to total assets.
The major purpose of the study is to examine the firm-specific and macroeconomic
determinants of corporate capital structure of Nepalese commercial banks. The
specific objectives of this study are (a) to examine the structure and pattern of bank
specific factors, macroeconomic factors in Nepalese commercial banks (b) to
determine the structure and pattern of capital structure of Nepalese commercial banks
(c) to find out the relation of selected bank specific and macroeconomic factors with
capital structure of Nepalese commercial banks (d) to analyze the most important
factors affecting capital structure in context of Nepalese commercial banks.
The study is based on descriptive and causal-comparative research designs. The
descriptive research design has been adopted to undertake fact-finding operation
searching for adequate information about the impact of bank size, assets growth,
viii
liquidity ratio, profitability, net worth, gross domestic product and inflation on
corporate capital structure of Nepalese commercial banks. Moreover, this study also
emphasizes on cause and effect relationship between corporate capital structure and
its determinants in Nepalese context. This study is based on the secondary data which
are gathered from 20 commercial banks in Nepal with 140 total number of
observations for the study period 2008-2014. The main sources of data are official
website of concern commercial banks, annual reports of commercial banks,
Supervision Reports published by NRB, annual reports of respective banks and
published journals along with the publications of the World Bank.
The result shows that average total debt to total assets is highest for SBI and lowest
for ADBL. The average profitability is highest for NBBL and lowest for MBL. The
average liquidity ratio is highest for NMB and lowest for HBL. The study reveals that
bank size and assets growth have positive relationship with total debt to total assets.
Liquidity ratio, profitability and net worth are negatively related to the total debt to
total assets. It indicates that increase in liquidity ratio, profitability and net worth lead
to decrease in total debt to total assets. Regarding the macroeconomic variable, the
study found that to total debt to total assets is positively related to gross domestic
product growth and inflation. The regression result shows that beta coefficients are
positive for bank size, assets growth, gross domestic product and inflation with total
debt to total assets; whereas beta coefficients are negative for liquidity ratio,
profitability and net worth. However, the beta coefficients are significant for bank
size, liquidity ratio, profitability, net worth and gross domestic product growth.
The major conclusion of the study is that bank size, liquidity ratio, profitability, net
worth, gross domestic product growth plays a significant role in determining the
corporate capital structure of Nepalese commercial banks. |
|
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