Bank Characteristics Effect on Capital Structure: Evidence from PMG and CS-ARDL

Ahmet Erülgen, Husam Rjoub and Ahmet Adalıer
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Ahmet Erülgen: Department of Accounting and Finance, Faculty of Economics and Administrative Sciences, Cyprus International University, Northern Cyprus via Mersin 10, 99258 Lefkosa, Turkey
Ahmet Adalıer: Department of Management Information Systems, School of Applied Sciences, Cyprus International University, Northern Cyprus via Mersin 10, 99258 Nicosia, Turkey

JRFM, 2020, vol. 13, issue 12, 1-13

Abstract: The main aim of this paper was to investigate the impact of bank characteristics on capital structure empirically. The study employed a panel data analysis, Pooled Mean Group (PMG) and Cross-Sectionally Augmented Autoregressive Distributed Lag (CS-ARDL) estimators were utilized, for the period spans between the years 2008 and 2018. Both the borrowing (leverage) ratio and equity ratio used in the analysis cover short-term deposits and long-term deposits as a fundamental determinant variable on the capital structure. The main findings confirm that the deposit ratio has a positive relationship with the size of the bank. In other words, big banks use more foreign sources than small banks to use the tax shield advantage. At the same time, a percentage increase in bank size and liquidity ratio enhance the bank deposit rate by 0.0068% and 0.479%, respectively, in the long-run, while a percentage change in interest income coverage will reduce the bank deposit rate by 0.004% in the long-run. Meanwhile, the significant causal relationship of growth rate with the bank deposit rate could not be established. In addition, the short-run coefficients of the variables reveal that size, interest coverage, and liquidity have a positive and significant causal relationship with bank deposit rate in the short-run. The findings of the study are in line with the results of capital structure theories, especially the hierarchy theory and balancing theory.

Keywords: optimum capital structure; financing; profitability; bank size; PMG; CS-ARDL (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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