Impacts of Capital Structure on Performance of Banks in a Developing Economy: Evidence from Bangladesh

Md. Nur Alam Siddik, Sajal Kabiraj and Shanmugan Joghee
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Md. Nur Alam Siddik: Department of Finance and Banking, Begum Rokeya University, Rangpur 5400, Bangladesh
Sajal Kabiraj: International Business College, Dongbei University of Finance and Economics, Dalian 116025, China
Shanmugan Joghee: Department of Business Management, Skyline University College, Sharjah 1797, UAE

IJFS, 2017, vol. 5, issue 2, 1-18

Abstract: The capital structure decision plays an important role in the performance of a firm. Therefore, there have been many studies inspecting the rapport of capital structure with the performance of firms, although the findings of these studies are inconclusive. In addition, there is a relative deficiency of empirical studies examining the link between capital structure and the performance of banks in Bangladesh. This study attempts to fill this gap. Using the panel data of 22 banks for the period of 2005–2014, this study empirically examined the impacts of capital structure on the performance of Bangladeshi banks assessed by return on equity, return on assets and earnings per share. The results of the pooled ordinary least square analysis showed that capital structure inversely affects bank performance. The findings of this empirical study are of greater significance for the developing countries like Bangladesh because it calls for the concentration of the bank management and the policy makers to pursue the policies that reduce reliance on debt to achieve the optimal level of capital structure. The results of this study are also analysed in the light of earlier studies.

Keywords: capital structure; firm performance; panel data; unit root analysis; Bangladesh (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (21)

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