The impact of capital structure on profitability of Commercial Banks in Ethiopia (original) (raw)
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Does Capital Structure Matter on Performance of Banks ? ( A Study on Commercial Banks in Ethiopia )
2016
The main intention of this study was to examine the relationship between capital structure and performance of commercial banks in Ethiopia. The investigation was based on pannel data (from the year 2000-2012) collected from the annual reports of eight sample commercial banks in the country. This study establish a model to measure the association between capital structure which is proximate by total debt to total asset (TDTA) and total debt to total capital (TDTC) and performance which is measured by return on asset (ROA), return on equity (ROE) and net profit margin (NPM). The results of regression analyses indicate that on average leverage has a positive effect on the financial performance of commercial banks in Ethiopia when performance measured by return on equity. In contrast, the similar analyses indicate that leverage has a significant negative effect on performance of commercial banks in Ethiopia when performance is measured by return on asset and net profit margin. These sup...
2016
Abstract- The main intention of this study was to examine the relationship between capital structure and performance of commercial banks in Ethiopia. The investigation was based on pannel data (from the year 2000-2012) collected from the annual reports of eight sample commercial banks in the country. This study establish a model to measure the association between capital structure which is proximate by total debt to total asset (TDTA) and total debt to total capital (TDTC) and performance which is measured by return on asset (ROA), return on equity (ROE) and net profit margin (NPM). The results of regression analyses indicate that on average leverage has a positive effect on the financial performance of commercial banks in Ethiopia when performance measured by return on equity. In contrast, the similar analyses indicate that leverage has a significant negative effect on performance of commercial banks in Ethiopia when performance is measured by return on asset and net profit margin....
The impact of Capital Structure on profitability of three selected public commercial banks in Ghana
This research explores the impact of capital structure on the profitability of publicly traded manufacturing firms in Bangladesh. In this paper, we applied the fixed effect regression to find out the correlation among independent variables (debt ratio, equity ratio and debt to equity ratio) and dependent variables (return on asset, return on equity and earnings per share). A sample of 50 observations of selected 10 manufacturing companies listed in Dhaka Stock Exchange has been analyzed over the period of 2013 to 2017. This research reveals that the debt ratio and equity ratio have a significant positive impact but debt to equity ratio has a significant negative impact on ROA. This paper also exposes that, equity ratio has a significant positive impact but debt to equity ratio has a significant negative impact on ROE. Finally, debt and equity ratio has a significant negative impact on EPS. Findings of this research will help the listed manufacturing companies to maintain an optimum capital structure which will lead to the maximization of stockholders wealth.
International Journal of Business, Management and Economics, 2023
This study aimed to examine the impact of capital structure on bank performance using data from nine listed banks on the Ghana Stock Exchange. The study utilised secondary panel data extracted from the published financial statements of these banks. Bank performance was measured using return on assets and return on equity as proxies, while the ratio of total debt to total assets served as the independent variable. Additionally, firms' age, size, and liquidity were control variables. The random effect technique was used for analysis, employing Ordinary Least Squares (OLS) and Autoregressive methods. The results indicated a positive and significant relationship between total debt to total assets, return on assets and equity. Furthermore, firms' age positively and significantly impacted the return on assets and return on equity in both models. Interestingly, the study found a negative effect of firms' liquidity on return on assets in model one, while the size of the firms had no impact on bank performance. Policymakers can encourage financial institutions to provide accessible and affordable lending options to businesses, enabling them to leverage debt effectively. This can be particularly beneficial for small and medium-sized enterprises (SMEs) that often face challenges accessing capital.
THE IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF COMMERCIAL BANKS IN GHANA
The study examined the effect of capital structure (measures as short term debt ratio, long term debt ratio, and total debt ratio) on profitability (measured as Return on Assets and Return on equity) of commercial banks in Ghana. The study sampled 23 banking over a six year period from 2010 to 2015 and extracted data from the annual of these banks. Data was analysed using descriptive statistics, correlation analysis as well as panel regression analysis. The results showed that banks in Ghana are highly leveraged with debt financing constituting 84% of total capital out of which 77% is short term debt despite the increase in minimum equity capital of these banks. The regression analysis revealed that short term debt ratio and long term debt ratio are negatively related with profitability of banks in Ghana. However, total debt ratio was positively associated with profitability of Banks in Ghana. On the control variables, firm size, foreign ownership and age of the bank were positively associated with banks profitability whiles growth in customers' deposits was negatively associated with banks' profitability. The results show that commercial banks in Ghana reliance on short term financing (deposits) reduces banks profitability and as such banks should shift their financing focus from deposits to other sources. The results call for firms to choose the right mix of short term and long term debt that will maximize profitability of bank. Contribution/ Originality: The study contributes to literature by examining the impact of capital structure on banks profitability in the context of regulated equity capital for commercial banks both listed and non-listed. The study is among the few capital structure and performance studies on banks is developing countries. The study serves as a basis for future research into the right mix of capital for commercial banks in Ghana that will enhance profitability.
Determinants of Capital Adequacy of Ethiopia Commercial Banks
2016
The main objective of the study is to investigate empirically the determinants of CAR in Ethiopian commercial banks. The study period covered the year 2004-2013 on which eight banks are selected based on availability of ten years data. The study use secondary data which is gathered from annual reports of the banks under study. Panel data regression is used in this study and analyzes relationships between bank specific variables: SIZE
Determinants of Capital Adequacy of Commercial Banks in Ethiopia
2017
This thesis aimed to see the determinant factors for capital adequacy using 14 selected banks operating in Ethiopia from 2011 to 2015. The paper conducted different estimation to see the relationship between the dependent variable, Capital Adequacy Ratio (CAR) and independent Variables which include Bank size (SIZE), DAR (Deposit to Asset Ratio), Loan to Asset Ratio (LAR), Loan to Deposit (LTD), Return on Asset (ROA), Return on Equity (ROE), Loan Loss Provision (LPR), and macroeconomic variables (gross domestic product and inflation).
The Impact of Capital Structure on Banks’ Profitability in Africa
2017
This paper investigates the impact of capital structure on the profitability of banks in Africa. Using dynamic panel regression robust analysis and data from 37 countries in SSA, the study employed the Debt Ratio (DR) as a measure of capital structure; whereas banks profitability was measured using Risk Adjusted Return on Asset (RAROA), Risk Adjusted Return on Equity (RAROE) and Net Interest Margin (NIM). The findings suggest that, banks capital structure is a driver of profitability. Other variables that significantly influence banks profitability are size, tangible asset, growth, taxes and interest rate.
Capital Structure and Bank Performance: Empirical Evidence from Ghana
2019
The aim of this paper is to examine the impact of capital structure on profitability of commercial banks in Ghana. The study used a sample of 21 commercial banks over the period 2000-2014 using panel corrected standard errors and two-stage least-squares estimation approaches. The results show that bank capital structure measured as capital-to-asset ratio is a robust and positive driver of bank performance (profitability) measures (return on assets and net interest margin). Additionally, the results further indicate that share of customer demand deposit positively affects bank profitability. The positive relationship between the capital-to-asset ratio and performance provides support for the bank capitalization policy implemented by the Bank of Ghana. Also, the findings provide evidence in support of the recent upsurge in bank short-term deposit mobilization strategies and promotions by commercial banks in the country to enhance their deposit base.