Capital Structure and the Levels of Cash Flow Among Listed Banks in Emerging Economies in Africa (original) (raw)
Related papers
2020
The capital structure of an organization is potentially one of its most important choices. The success of every organization depends on its capital mix or structure. This places a greater responsibility on financial managers to decide the best capital combination that will maximize shareholders' wealth. Due to the abstract nature of capital structure in an organization, this paper attempts to examine the influence of capital structure on the financial performance of banks in Ghana. The study uses debt ratio (DR) as proxy for banks capital structure and uses return on assets (ROA), return on equity (ROE) and earning per share (EPS) as proxies for banks performance measurement in the country understudy. The study sampled 7 banks out of the 11 banks listed on the Ghana stock exchange (as at 2017) over a seven-year period from 2008 to 2014 and data from their respective annual financial statements were extracted. It was concluded that capital structure has a negative effect on banks performance as the results confirms various studies reviewed.
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.
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.
This paper examines the statistically significant influence which capital structure has had on corporate financial performance of listed non-financial companies in East African stock markets. It used panel data of 272 observations including 34 East African non-financial listed firms listed in East African stock markets such as Dar Es Salaam Stock Market (DSE), Nairobi Securities Exchange (NSE) and Uganda Securities Exchange (USE) for a period of 8 years (i.e., 2006-2013). Using the Panel Corrected Standard Errors (PCSEs) and Fixed Effect (FE), the study formulated two econometric models with return on assets (ROA) and return on equity (ROE) as dependent variables and measures of corporate financial performance respectively, three independent variables such as short term debt ratio (STDR), long term debt ratio (LTDR) and total debt ratio (TDR) as a measure of capital structure, furthermore the study used size of the firm (SIZ) as a control variable in order to control the differences in firm's operating environment. The result indicates that capital structure has a negative and statistically significant influence on East African listed firm's financial performance at 5% significance level. These results show that in average profitable listed firms in East African prefers to use internal source of financing in their capital structure as compared to external source of financing (like Debts-STDR, LTDR and TDR) and this results are supporting pecking order theory. Lastly the study recommends to corporate financial managers of East
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...
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.
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.
Issues on Bank’s Capital Structure and Profitability: A Developing Country Context
2021
Purpose: The study aims to show the effect of capital structure on banks' profitability in developing countries. Design/Methodology/Approach: The study is conducted on 28 commercial banks from 2009 to 2016 of panel data to infer the concurrent relationship between capital structure and profitability. The preliminary diagnoses picked up the Generalized Methods of Moments (GMM) method to address the endogeneity issue in dynamic panel data. Findings: The study found that the bank's capital structure is negatively associated with profitability and vice versa. Moreover, asset tangibility and regulatory capital harm banks' current capital structure, whereas tax shield and 1-year lagged capital structure have a positive influence. On the contrary, a bank's profitability is positively associated with bank growth, and 1-year lagged profit, while credit risk and liquidity are negatively affected. The study implies that banks should use an appropriate mixture of debt and equity; otherwise, immature decisions in capital structure may demise banks' profitability, which will ultimately turn into bank failure. Practical Implications: Adherence to the adoption of stringent capital structure allures banks in maximizing profit to cope with market competition. Beyond the theoretical aspects, the study extends its scope in the practical implications of adopting a profit-maximizing capital structure in a developing country context. However, capital structure choice differs from bank to bank based on their performance and position in the market. The study clearly addressed some of the relevant issues which affect banks' performance adversely in practice. Originality/Value: The study contributes to the existing literature and tries to explain the role of capital structure in banks' performance, mostly in submerge economies.
Capital Structure and Financial Performance of Commercial Banks in Ghana
Business, Management and Economics - Research Progress, 2024
This paper investigates the impact of capital structure on the financial performance of commercial banks in Ghana for the period, 2008-2022. The methodology involves a robust analytical framework using econometric models, particularly the Panel Autoregressive Distributed Lag (P-ARDL) regression model enabling a thorough examination of the complex interactions between capital structure and bank performance. Spanning five listed banks over a 15-year period for which consistent data is available, panel-data econometric modelling was used to accommodate individual heterogeneity. The findings reveal a significant long-run positive impact of capital structure on financial performance, suggesting that optimal capital structure can enhance bank performance in the long run. In the short run, capital structure contemporaneously and sluggishly impacts ROA negatively, but with only a weak negative sluggish effect on ROE. The results further highlight the significant long-run detrimental effect of bank size and the robust positive long-run effect of bank growth on the financial performance of banks. The paper recommends a strategic focus on optimising capital structure to enhance the long-run financial performance of Ghanaian commercial banks thereby underscoring the importance of considering internal factors in capital structure decisions. This study contributes to the global discourse on capital structure, offering fresh perspectives from an underdeveloped economic context.
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....