THE CAUSAL RELATIONSHIP BETWEEN BANK CAPITAL AND PROFITABILITY

2007 ◽  
Vol 03 (01) ◽  
pp. 0750002 ◽  
Author(s):  
DAVID E. HUTCHISON ◽  
RAYMOND A. K. COX
Keyword(s):  
Capital Structure ◽  
Causal Relationship ◽  
Positive Relationship ◽  
Equity Capital ◽  
Bank Capital ◽  
Financial Leverage ◽  
Return On Assets ◽  
Return On Equity ◽  
The Us ◽  
The Relationship

The relationship between capital structure and return on equity (ROE) is examined. It is shown that for banks in the US, for the relatively less regulated 1983–1989 period as well as the more highly regulated 1996–2002 period, there is a positive relationship between financial leverage and the ROE. The analysis is extended to determine the relationship between return on assets (ROA) and equity capital. The evidence supports the hypothesis that there is a positive relationship between equity capital and ROA.

Capital Structure, Growth and Profitability: Evidence from Domestic Commercial Banks in Cambodia

2018 ◽  
Vol 5 (1) ◽  
pp. 31-38
Author(s):  
Khun Sokang ◽  
Nop Ratanak
Keyword(s):  
Capital Structure ◽  
Commercial Banks ◽  
Positive Relationship ◽  
Negative Impact ◽  
Return On Assets ◽  
Significance Level ◽  
Return On Equity ◽  
The Impact ◽  
The Relationship ◽  
Pls Method

This paper aims to examine the impact of capital structure and growth on the profitability of domestic commercial banks in Cambodia. The study uses a panel least squares (PLS) method using a sample of 10 domestic commercial banks in Cambodia over the period of 2005-2013 to examine the relationship between capital structure, growth, and profitability of commercial banks. The finding reveals that capital structure variables including debt to equity (DE), equity to loan (EL), and equity to deposit (ED) have a significantly negative impact on return on assets (ROA) and return on equity (ROE) with 1% significance level. Moreover, the growth variables including growth in assets (GA) and growth in equity (GE) have shown a positive relationship with ROA and ROE. A significant relationship exists only between GE and ROE at 1% significance level.

Debt Financing and Corporate Finance Performance: A Dynamic Investigation from Nigeria Quoted Firms

2019 ◽  
Vol 1 (1) ◽  
pp. 48-59
Author(s):  
Uzokwe Grace Onyinyechi
Keyword(s):  
Capital Structure ◽  
Coefficient Of Determination ◽  
Positive Sign ◽  
Financial Leverage ◽  
Return On Assets ◽  
Return On Equity ◽  
Explanatory Variables ◽  
Food And Beverage ◽  
Equity Ratio ◽  
State Of Affairs

There are two components of corporate capital. This paper examined the effect of debt financing on the financial performance of quoted firms in Nigeria stock exchange using time series data from 2000-2017. The objective was to examine the controversial findings of scholars on the effect of capital structure on corporate performance of firms.  Return on assets and return on equity was modeled as the function of debt equity ratio, debt ratio, equity ratio, total liability ratio and long term debt ratio. Multiple regressions with the aid of statistical package for social sciences were used as data analysis techniques. Model one found that a correlation coefficient (r) of .872 this implies that a very strong correlation exists between return on assets and explanatory variables. The coefficient of determination (r²) is .678 which shows that 67.8% of the variation in Return on Assets is attributable to the variations in the financial leverage. Also, the F- value calculated of 8.338 has a correlation corresponding value of .004 which implies a good model utility. The test of significance conducted as shown in the tables above states that ROA has a calculated value of 242.032 and a corresponding significance value/probability value of .014.   The positive sign of t-value (1.653) shows the direction of the variables. This therefore implies that when a financial leverage is well used, this leads to a better, reliable and fairer financial result that is objective and represent the true state of affairs in the food and beverage companies proportionately. Model two found that a correlation coefficient (r) of .772 this implies that a very strong correlation exists between return on assets and explanatory variables. The coefficient of determination (r²) is .639 which shows that 63.9% of the variation in return on equity   is attributable to the variations in the financial leverage. Also, the F- value calculated of 7.644 has a correlation corresponding value of .004 which implies a good model utility. The test of significance conducted as shown in the tables above states that ROE has a calculated value of 568.906 and a corresponding significance value/probability value of .003.  The positive sign of t-value (3.310) shows the direction of the variables. This therefore implies that when a financial leverage is well used, this leads to a better, reliable and fairer financial result that is objective and represent the true state of affairs in the food and beverage companies proportionately. We recommend that management of the firms should work very hard to optimize the capital structure in order to increase the returns on equity and assets and that Management of Nigerian firms should increase their commitments into capital structure in order to improve earnings from their business transaction.

scholarly journals Financial Leverage and Firms’ Performance: Empirical Investigation of KSE-100 Index

ETIKONOMI ◽  
2018 ◽  
Vol 17 (1) ◽  
pp. 45-56 ◽  
Author(s):  
Farhan Ahmed ◽  
Iqra Awais ◽  
Muhammad Kashif
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Stock Exchange ◽  
Optimal Level ◽  
Annual Data ◽  
Financial Leverage ◽  
Return On Assets ◽  
Return On Equity ◽  
Listed Firms ◽  
The Impact

Capital generation to fund everyday operations and long-term expansions is a constant concerning element in the corporate world. This study aims to investigate the optimal level of capital structure that firms can adopt to improve their financial performance given the industry dynamics and economic circumstances of the country. Using Hausman’s specification test, annual data for the period 2005 – 2014 of Karachi Stock Exchange (KSE) 100 index listed securities has been collected to analyze the impact of financial leverage on the firms’ performance. Return on assets, return on Equity, and TOBIN’s Q are the proxies of financial performance analyzed against financial leverage for the KSE 100 index listed firms. The finding of the paper indicates that capital structure, leverage, interest cover and sales growth as most significant variables impacting firms’ profitability.   DOI: 10.15408/etk.v17i1.6102

scholarly journals The Impact of Capital on Bank Profitability: Case of Tunisia

2021 ◽  
pp. 7-20
Author(s):  
Mohamed Aymen Ben Moussa ◽  
Hédi Trabelsi ◽  
Adel Boubaker
Keyword(s):  
Capital Adequacy ◽  
Bank Capital ◽  
Return On Assets ◽  
Bank Profitability ◽  
Return On Equity ◽  
Net Interest Margin ◽  
Capital Adequacy Ratio ◽  
The Impact ◽  
The Relationship ◽  
Interest Margin

The capital adequacy ratio measures the ability of a financial institutions to meet its liabilities by comparing its capital with assets. This article studied the relationship between bank capital and bank profitability measured by (Return on assets; return on equity; net interest margin). We used a method of static panel for a sample of 11 banks in Tunisia between (2000…2018). We found that bank capital has a significant impact on ROA. But capital has a non significant effect on bank return on equity and not significant impact on bank net interest margin.

scholarly journals Role Analysis of Debt Equity Ratio on Dividend Payout Ratio, Stock Return and Earning Per Share with Firm Size and Return on Equity as Intervening Variable (Case Study of Infrastructure Companies Listed in Indonesia Stock Exchange Year of 2015-2019)

2021 ◽  
Vol 8 (11) ◽  
pp. 293-310
Author(s):  
Ulfi Nurfaeda ◽  
Tantri Yanuar Rahmat Syah
Keyword(s):  
Capital Structure ◽  
Firm Size ◽  
Stock Return ◽  
Positive Relationship ◽  
Infrastructure Development ◽  
Return On Equity ◽  
Significant Positive Relationship ◽  
Equity Ratio ◽  
The Relationship

The Indonesian government has been catching up with infrastructure development in recent years. In carrying out infrastructure development, funding and determination of the optimum capital structure are needed because this will affect a company's financial structure. The company's source of funds comes from foreign capital and equity as measured by the debt-to-equity ratio. However, in realizing the optimal determination of capital structure will affect several other financial ratios, therefore the aim of this study is to identify and examine the relationship between DER and DPR, SR and SR which uses FS and ROE as intervening variables. The data used were fourteen companies engaged in building construction and toll road construction. The results of this study indicate that there is a significant positive relationship between DER on FS, ROE, EPS and DPR, FS on EPS and ROE on DPR and EPS. The DER variable on DPR and EPS which is moderated by ROE and FS also has a significant positive relationship. On the other hand, the relationship between FS and DPR and the DER variable against DPR moderated by FS, show a significant negative, while the relationship between DER and SR is negative and insignificant. In addition, the relationship between FS and ROE on SR and DER against SR which is moderated by FS and ROE shows a positive but insignificant. Keywords: Debt Equity Ratio, Firm Size Earning Per Share, Return on Equity, Dividend Payout Ratio dan Stock Return.

Debt Financing and Corporate Finance Performance: A Dynamic Investigation from Nigeria Quoted Firms

2019 ◽  
pp. 48-59
Keyword(s):  
Capital Structure ◽  
Coefficient Of Determination ◽  
Positive Sign ◽  
Financial Leverage ◽  
Return On Assets ◽  
Return On Equity ◽  
Explanatory Variables ◽  
Food And Beverage ◽  
Equity Ratio ◽  
State Of Affairs

There are two components of corporate capital. This paper examined the effect of debt financing on the financial performance of quoted firms in Nigeria stock exchange using time series data from 2000-2017. The objective was to examine the controversial findings of scholars on the effect of capital structure on corporate performance of firms. Return on assets and return on equity was modeled as the function of debt equity ratio, debt ratio, equity ratio, total liability ratio and long term debt ratio. Multiple regressions with the aid of statistical package for social sciences were used as data analysis techniques. Model one found that a correlation coefficient (r) of .872 this implies that a very strong correlation exists between return on assets and explanatory variables. The coefficient of determination (r²) is .678 which shows that 67.8% of the variation in Return on Assets is attributable to the variations in the financial leverage. Also, the F- value calculated of 8.338 has a correlation corresponding value of .004 which implies a good model utility. The test of significance conducted as shown in the tables above states that ROA has a calculated value of 242.032 and a corresponding significance value/probability value of .014. The positive sign of t-value (1.653) shows the direction of the variables. This therefore implies that when a financial leverage is well used, this leads to a better, reliable and fairer financial result that is objective and represent the true state of affairs in the food and beverage companies proportionately. Model two found that a correlation coefficient (r) of .772 this implies that a very strong correlation exists between return on assets and explanatory variables. The coefficient of determination (r²) is .639 which shows that 63.9% of the variation in return on equity is attributable to the variations in the financial leverage. Also, the F- value calculated of 7.644 has a correlation corresponding value of .004 which implies a good model utility. The test of significance conducted as shown in the tables above states that ROE has a calculated value of 568.906 and a corresponding significance value/probability value of .003. The positive sign of t-value (3.310) shows the direction of the variables. This therefore implies that when a financial leverage is well used, this leads to a better, reliable and fairer financial result that is objective and represent the true state of affairs in the food and beverage companies proportionately. We recommend that management of the firms should work very hard to optimize the capital structure in order to increase the returns on equity and assets and that Management of Nigerian firms should increase their commitments into capital structure in order to improve earnings from their business transaction.

scholarly journals Effect of Capital Structure on Financial Performance of Listed Banks in Nigeria

2019 ◽  
pp. 1-14
Author(s):  
Sunday David Adeoye ◽  
Samson Olusola Olojede
Keyword(s):  
Capital Structure ◽  
Financial Performance ◽  
Stock Exchange ◽  
Secondary Data ◽  
Equity Capital ◽  
Return On Assets ◽  
Cross Sectional ◽  
Return On Equity ◽  
Negative Effect ◽  
Precautionary Measures

Corporate entities all over the world are faced with the problem of determining appropriate finance that will boost the value of the entity and maximize the wealth of shareholders. However, for overall wealth of shareholders to be met and consistent increase in value of Banks to be achievable, capital either debt in form of customers deposit or equity capital raised from investors is inevitable. This study therefore examined the effect of capital structure on the performance of some selected banks in Nigeria. The objectives were to examine the relationship that exists between capital structure and financial performance and to investigate the effect of capital structure on the financial performance of quoted deposit money banks in Nigeria. To achieve these, a cross sectional time series secondary data covering the period of seven years (2012-2018) was extracted from the audited financial statement of ten (10) banks listed on the floor of stock exchange. The descriptive statistics, Pearson moment correlation and multiple linear regressions were used. The correlation results showed that capital structure is negatively correlated with financial performance (ROA and ROE). Result from panel regression revealed that debt to equity though significant, impacted negatively on return on assets and return on equity , asset tangibility significantly impacted return on asset but insignificantly impacted return on shareholder’s equity  and also Age have a significant impact on return on asset and insignificant effect on return on equity . This study therefore concluded that capital structure have a negative effect on the financial performance of deposit money banks in Nigeria and recommended that appropriate proportion of capital should be tailored towards viable investment opportunities for maximum return of shareholders wealth and increase in value of the firm. More so, while finance manager is alert to the movement in the stock market, banks should take precautionary measures for mitigating credit risk associated with lending and borrowing.

scholarly journals Ownership And Firm Performance: The Experience Of Saudi Arabias Emerging Economy

2011 ◽  
Vol 8 (8) ◽  
Author(s):  
Abuzar M. A. Eljelly
Keyword(s):  
Saudi Arabia ◽  
Firm Performance ◽  
Stock Market ◽  
Market Performance ◽  
Return On Assets ◽  
Private Companies ◽  
Return On Equity ◽  
Net Profit ◽  
The Government ◽  
The Relationship

This study examines the relationship between firm ownership and corporate performance in Saudi Arabia, using a sample of Listed Private Companies (LPCs) and Listed Government Related Companies (LGRCs). The study compares the operating and market performance of the LPCs and LGRCs during the period 2000-2003 and found that, in general, LGRCs outperform or match the performance of LPCs. More specifically, the study finds that LGRCs tend to mostly outperform LPCs in terms of profitability, as measured by Return on equity (ROE) and Net Profit Margin (NPM), operating efficiently, as measured in terms of Return on assets (ROA), and match them in their stock market risk adjusted performance. The study concludes that these results may have implications for the issue of privatization programs which the government has recently started.

scholarly journals Capital structure and profitability: An empirical study of South African banks

2016 ◽  
Vol 14 (1) ◽  
pp. 8-19 ◽  
Author(s):  
Kudzai Raymond Marandu ◽  
Athenia Bongani Sibindi
Keyword(s):  
Capital Structure ◽  
Credit Risk ◽  
South African ◽  
Time Series Data ◽  
Emerging Market ◽  
Strong Relationship ◽  
Capital Adequacy ◽  
Series Data ◽  
Bank Capital ◽  
The Relationship

The bank capital structure debacle in the aftermath of the 2007-2009 financial crises continues to preoccupy the minds of regulators and scholars alike. In this paper we investigate the relationship between capital structure and profitability within the context of an emerging market of South Africa. We conduct multiple linear regressions on time series data of big South African banks for the period 2002 to 2013. We establish a strong relationship between the ROA (profitability measure) and the bank specific determinants of capital structure, namely capital adequacy, size, deposits and credit risk. The relationship exhibits sensitivity to macro-economic shocks (such as recessions), in the case of credit risk and capital but is persistent for the other determinants of capital structure.

scholarly journals CEO compensation and performance of state owned enterprises in South Africa

2012 ◽  
Vol 10 (1) ◽  
pp. 97-109 ◽  
Author(s):  
Sam Ngwenya ◽  
Mahlomolo Khumalo
Keyword(s):  
South Africa ◽  
Ceo Compensation ◽  
Positive Relationship ◽  
Board Members ◽  
Total Revenue ◽  
Return On Assets ◽  
Base Salary ◽  
And Performance ◽  
Using Data ◽  
The Relationship

The study investigates the relationship between CEO compensation and performance of State Owned Enterprises (SOEs) in South Africa, using data for the period 2009 to 2011. The results indicated that there exist no positive relationship between CEO compensation and SOEs performance as measured by return on assets. The results also indicated a positive relationship between CEO compensation (base salary) and the size of SOEs as measured by total revenue and number of employees. The results suggest that board members of SOEs in South Africa should hold CEOs accountable for the performance of SOEs, and should not pay huge salaries and bonuses to non performing CEOs.

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