| Title : | Capital structure and corporate performance: a case of Nepal | | Material Type: | printed text | | Authors: | Kabindra Pokharel, Author | | Publication Date: | 2016 | | Pagination: | 116P. | | Size: | Books | | Accompanying material: | 6/B | | Languages : | English | | Descriptors: | Capital structure
| | Class number: | 332.041 | | Abstract: | During the last two decades the banking sector has experienced worldwide major transformations in its operating environment. Both external and domestic factors have affected its structure and performance. Recently banking institutions are facing the environment that is changing rapidly and competition is increasing at local as well as international level. As a result the risk in banking sector is increasing day by day. The choice of capital structure is crucial in the context of a bank. However, it is an essential element for the development of a healthy banking system in developing countries. The relationship between capital structure and performance are studied extensively in different period of time. In regards to the relationship between capital structure and profitability, different results are found. Some of the studies state that, there is a country where capital structure of banks affects positively to the profitability. Meanwhile, other studies indicate the nonlinear negative or positive relationship of capital structure and bank profitability.
Profitability is the major reason behind the existence of any business and same thing applies in the banking sector also. Banks are also guided by the profit maximization principle. Banks always look for the ways to increase their financial performance and minimize the risk associated with that increased performance. Hence, for that different activities are taken into consideration. To maximize the performance and minimize the risk a set of activities such as increasing the size or total assets, decreasing loan, increasing deposits, liquidity and capital are taken under their consideration. This study on capital structure and bank performance has been undertaken for Nepalese banks because Nepalese banking sector has gone through broad changes and is emerging as a major sector of the economy. Thus, this study aims to analyze the effect of capital structure and some bank specific variables on performance of Nepalese banks.
The results in the prior studies on capital structure and performance of banks are mixed and unclear. Hence, this study has been conducted to get clear idea of the capital structure and performance of Nepalese commercial banks. For this, the sample of 19 commercial banks with data of 7 years from 2008 to 2014 has been taken. Data has been collected from various secondary sources like annual reports of sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, portfolio analysis, correlation analysis, and regressions have been carried out to examine the secondary data.
The performance measures like return on assets (ROA), earnings per share (EPS) and net interest margin (NIM) of the banks have been used as the dependent variable. Capital structure variables like total debt to total assets ratio, long term debt to total assets ratio and short term debt to total assets ratio. The bank specific variables like size and credit risk have been considered as independent variables.
Based on the results, total debt to total assets ratio, long term debt to total assets ratio and short term debt to total assets ratio in Nepal are important capital structure variable. Size and credit risk are bank specific variables in order of their relative importance that enhances the performance of the banks. To be more specific, total debt to total assets ratio, long term debt to total assets ratio and short term debt to total assets ratio are the independent variables that tend to influence the performance in negative manner. It implies that increase in any of these variables is likely to decrease the performance of the banks. However, independent variable size and credit risk has positive relation with performance. It reveals that bigger the company higher the performance in commercial banking industry.
The recommendation put forward by this study is that banks are suggested to decrease the proportion of debt in capital mix to have better performance but peaking order theory and tradeoff theory of capital structure should be analyzed. On the other hand, credit risk has positive effect with performance. So, it is recommended to have certain level of credit risk to increase the bank performance. The size has positive relation with performance variable shows that bigger organization has better performance. The major limitation of this study is that this study has excluded some bank macroeconomic variables that might influence on performance evaluation of banks. The study remains enough ground for future researcher in the same topic. The future studies can be carried out by selecting other financial institutions like development banks, public banks and finance companies to grab the wider view of banks performance evaluation.
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Capital structure and corporate performance: a case of Nepal [printed text] / Kabindra Pokharel, Author . - 2016 . - 116P. ; Books + 6/B. Languages : English | Descriptors: | Capital structure
| | Class number: | 332.041 | | Abstract: | During the last two decades the banking sector has experienced worldwide major transformations in its operating environment. Both external and domestic factors have affected its structure and performance. Recently banking institutions are facing the environment that is changing rapidly and competition is increasing at local as well as international level. As a result the risk in banking sector is increasing day by day. The choice of capital structure is crucial in the context of a bank. However, it is an essential element for the development of a healthy banking system in developing countries. The relationship between capital structure and performance are studied extensively in different period of time. In regards to the relationship between capital structure and profitability, different results are found. Some of the studies state that, there is a country where capital structure of banks affects positively to the profitability. Meanwhile, other studies indicate the nonlinear negative or positive relationship of capital structure and bank profitability.
Profitability is the major reason behind the existence of any business and same thing applies in the banking sector also. Banks are also guided by the profit maximization principle. Banks always look for the ways to increase their financial performance and minimize the risk associated with that increased performance. Hence, for that different activities are taken into consideration. To maximize the performance and minimize the risk a set of activities such as increasing the size or total assets, decreasing loan, increasing deposits, liquidity and capital are taken under their consideration. This study on capital structure and bank performance has been undertaken for Nepalese banks because Nepalese banking sector has gone through broad changes and is emerging as a major sector of the economy. Thus, this study aims to analyze the effect of capital structure and some bank specific variables on performance of Nepalese banks.
The results in the prior studies on capital structure and performance of banks are mixed and unclear. Hence, this study has been conducted to get clear idea of the capital structure and performance of Nepalese commercial banks. For this, the sample of 19 commercial banks with data of 7 years from 2008 to 2014 has been taken. Data has been collected from various secondary sources like annual reports of sample banks and consolidated financial reports prepared by Nepal Rastra Bank. Descriptive statistics, portfolio analysis, correlation analysis, and regressions have been carried out to examine the secondary data.
The performance measures like return on assets (ROA), earnings per share (EPS) and net interest margin (NIM) of the banks have been used as the dependent variable. Capital structure variables like total debt to total assets ratio, long term debt to total assets ratio and short term debt to total assets ratio. The bank specific variables like size and credit risk have been considered as independent variables.
Based on the results, total debt to total assets ratio, long term debt to total assets ratio and short term debt to total assets ratio in Nepal are important capital structure variable. Size and credit risk are bank specific variables in order of their relative importance that enhances the performance of the banks. To be more specific, total debt to total assets ratio, long term debt to total assets ratio and short term debt to total assets ratio are the independent variables that tend to influence the performance in negative manner. It implies that increase in any of these variables is likely to decrease the performance of the banks. However, independent variable size and credit risk has positive relation with performance. It reveals that bigger the company higher the performance in commercial banking industry.
The recommendation put forward by this study is that banks are suggested to decrease the proportion of debt in capital mix to have better performance but peaking order theory and tradeoff theory of capital structure should be analyzed. On the other hand, credit risk has positive effect with performance. So, it is recommended to have certain level of credit risk to increase the bank performance. The size has positive relation with performance variable shows that bigger organization has better performance. The major limitation of this study is that this study has excluded some bank macroeconomic variables that might influence on performance evaluation of banks. The study remains enough ground for future researcher in the same topic. The future studies can be carried out by selecting other financial institutions like development banks, public banks and finance companies to grab the wider view of banks performance evaluation.
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