Determinants of Capital Structure in the Banking Sector: Lessons from the Western Balkans

Yllka Ahmeti, Albina Kalimashi, Ardi Ahmeti and Skender Ahmeti
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Yllka Ahmeti: Faculty of Economics, University of Tetovo, Tetovo
Albina Kalimashi: Faculty of Economics, University of Prishtina "Hasan Prishtina"
Ardi Ahmeti: Faculty of Economics, University of Prishtina "Hasan Prishtina"
Skender Ahmeti: Faculty of Economics, University of Prishtina "Hasan Prishtina"

Economic Alternatives, 2023, issue 4, 703-722

Abstract: The study examines the capital structure of the Western Balkan banking industry across the period 2015 - 2020. Forty-seven of the total Western Balkan-based commercial banks were included in the study. By constructing a balanced panel, this study uses pooled ordinary least squares, fixed and random effects regressions, to assess the relationship between bank book leverage as the dependent variable and the set of bank-specific explanatory variables that include profitability, leverage ratio, bank size, earnings volatility, collateral, growth opportunities, and liquidity. The study shows a significant positive relationship between profitability and book leverage for the period studied. In contrast, leverage ratio, earnings volatility, collateral, growth, and liquidity significantly negatively impact the book leverage of Western Balkan banks. An extensive and comparative study of banks operating in Western and Eastern Balkan countries is recommended. The findings have practical implications for bank executives. They will assist them in identifying the bank-specific factors that influence the capital structure and selecting values that promote optimal capital structure. The findings of this study can help regulators develop an effective prudential framework. This study opens up new avenues for further research in this area for academics, researchers, and analysts.

Keywords: banking sector; Western Balkans; capital structure; Book leverage; Robust Fixed effects (search for similar items in EconPapers)
JEL-codes: D22 G21 G32 (search for similar items in EconPapers)
Date: 2023
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