Title :	Relationship between capital structure and profitability : a study of Nepalese commercial banks
Material Type:	printed text
Authors:	Anju Maharjan, Author
Publication Date:	2016
Pagination:	108p.
Size:	GRP/Thesis
Accompanying material:	7/B
Languages :	English
Descriptors:	Capital structure
Class number:	658.1522
Abstract:	The capital structure of a firm is a mixture of different securities. In general, firms can choose among many alternative capital structures. For example, firms can arrange lease financing, use warrants, issue convertible bonds, sign forward contracts or trade bond swaps. Firms can also issue dozens of distinct securities in countless combinations to maximize overall market value (Abor, 2005). The term capital structure has two components: debt and equity. Equity includes paid up share capital, share premium, reserves and surplus (retained earnings) while debt is the use of loan capital (Lutomia, 2002). The capital structure was defined by Copeland and Weston (1988) as the permanent financing represented by long-term debt, preferred stock, and shareholder equity. Profitability is measured of firm‟s efficiency (Khan and Jain, 1998). It is also a control measure of the earning power of a firms as well as operating efficiency. Weston and Copeland (1998) described profitability as net result of a large number of policies and decisions. Profitability is considered as precondition for an innovation, productive and efficient banking system (Chen and Liao, 2011). The major purpose of this study is to examine the impact of capital structure on the profitability of the Nepalese commercial banks. The specific objectives are: to analyze the structure and pattern of bank liquidity, bank size and credit risk on net interest margin, return on assets and return on equity share of Nepalese commercial banks, to evaluate relationship of bank size and liquidity with financial performance of Nepalese commercial banks, to examine the impact of bank long term debt to equity and total debt to equity on profitability of banks, to identify the most influential variables of capital structure to explain the profitability of Nepalese commercial banks and to examine the choice of capital (with debt or equity). The study is based on secondary data of Nepalese commercial banks taken for the period of 2009 to 2014 including 102 observations. The secondary data are collected from the Banking and Financial Statistics and Bank Supervision Report published by Nepal Rastra Bank and annual reports of the selected commercial banks. The study employed descriptive and causal comparative research designs. The result shows that long term debt to equity ratio and total debt to equity ratio are negatively correlated to net interest margin indicating higher the long term debt to VIII equity ratio and total debt to equity ratio, lower would be net interest margin (NIM). The bank size and liquidity position are negatively correlated to NIM. Credit risk is positively correlated to NIM. Hence, it indicates that higher the credit risk, higher would be NIM. Similarly, long term debt to equity ratio and total debt to equity ratio are negatively correlated to return on assets (ROA). Similarly, credit risk, bank size and liquidity position are negatively correlated to return on assets. Likewise, the study observes negative relationship of long term debt to equity ratio, bank size and liquidity position with return on equity (ROE). However, total debt to equity ratio and credit risk has negative relationship with (ROE). The beta coefficients for long term debt to equity ratio, total debt to equity ratio, bank size and liquidity position are negative with net interest margin (NIM). It indicates that long term debt to equity ratio, total debt to equity ratio, bank size and liquidity position have negative impact on NIM. However, the beta coefficients are significant for total debt to equity ratio and liquidity ratio at 5 percent level of significance. The beta coefficient for credit risk is positive with NIM. The beta coefficients for long term debt to equity ratio, total debt to equity ratio, credit risk, and bank size and liquidity position are negative with return on assets. Likewise, the beta coefficients for long term debt to equity ratio, bank size and liquidity position are negative with return on equity. It indicates that long term debt to equity ratio, bank size and liquidity position have negative impact on return on equity. However, total debt to equity ratio and credit risk has positive impact on return on equity.

Relationship between capital structure and profitability : a study of Nepalese commercial banks [printed text] / Anju Maharjan, Author . - 2016 . - 108p. ; GRP/Thesis + 7/B.
Languages : English

Descriptors:	Capital structure
Class number:	658.1522
Abstract:	The capital structure of a firm is a mixture of different securities. In general, firms can choose among many alternative capital structures. For example, firms can arrange lease financing, use warrants, issue convertible bonds, sign forward contracts or trade bond swaps. Firms can also issue dozens of distinct securities in countless combinations to maximize overall market value (Abor, 2005). The term capital structure has two components: debt and equity. Equity includes paid up share capital, share premium, reserves and surplus (retained earnings) while debt is the use of loan capital (Lutomia, 2002). The capital structure was defined by Copeland and Weston (1988) as the permanent financing represented by long-term debt, preferred stock, and shareholder equity. Profitability is measured of firm‟s efficiency (Khan and Jain, 1998). It is also a control measure of the earning power of a firms as well as operating efficiency. Weston and Copeland (1998) described profitability as net result of a large number of policies and decisions. Profitability is considered as precondition for an innovation, productive and efficient banking system (Chen and Liao, 2011). The major purpose of this study is to examine the impact of capital structure on the profitability of the Nepalese commercial banks. The specific objectives are: to analyze the structure and pattern of bank liquidity, bank size and credit risk on net interest margin, return on assets and return on equity share of Nepalese commercial banks, to evaluate relationship of bank size and liquidity with financial performance of Nepalese commercial banks, to examine the impact of bank long term debt to equity and total debt to equity on profitability of banks, to identify the most influential variables of capital structure to explain the profitability of Nepalese commercial banks and to examine the choice of capital (with debt or equity). The study is based on secondary data of Nepalese commercial banks taken for the period of 2009 to 2014 including 102 observations. The secondary data are collected from the Banking and Financial Statistics and Bank Supervision Report published by Nepal Rastra Bank and annual reports of the selected commercial banks. The study employed descriptive and causal comparative research designs. The result shows that long term debt to equity ratio and total debt to equity ratio are negatively correlated to net interest margin indicating higher the long term debt to VIII equity ratio and total debt to equity ratio, lower would be net interest margin (NIM). The bank size and liquidity position are negatively correlated to NIM. Credit risk is positively correlated to NIM. Hence, it indicates that higher the credit risk, higher would be NIM. Similarly, long term debt to equity ratio and total debt to equity ratio are negatively correlated to return on assets (ROA). Similarly, credit risk, bank size and liquidity position are negatively correlated to return on assets. Likewise, the study observes negative relationship of long term debt to equity ratio, bank size and liquidity position with return on equity (ROE). However, total debt to equity ratio and credit risk has negative relationship with (ROE). The beta coefficients for long term debt to equity ratio, total debt to equity ratio, bank size and liquidity position are negative with net interest margin (NIM). It indicates that long term debt to equity ratio, total debt to equity ratio, bank size and liquidity position have negative impact on NIM. However, the beta coefficients are significant for total debt to equity ratio and liquidity ratio at 5 percent level of significance. The beta coefficient for credit risk is positive with NIM. The beta coefficients for long term debt to equity ratio, total debt to equity ratio, credit risk, and bank size and liquidity position are negative with return on assets. Likewise, the beta coefficients for long term debt to equity ratio, bank size and liquidity position are negative with return on equity. It indicates that long term debt to equity ratio, bank size and liquidity position have negative impact on return on equity. However, total debt to equity ratio and credit risk has positive impact on return on equity.