Effects of ownership on the relationship between bank capital and financial performance: evidence from Bangladesh

Changjun Zheng, Md Mohiuddin Chowdhury, Md Abdul Mannan Khan and Anupam Das Gupta
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Changjun Zheng: School of Management, Huazhong University of Science and Technology, Wuhan, 430074, P.R. China.
Md Mohiuddin Chowdhury: School of Management, Huazhong University of Science and Technology, Wuhan, 430074, P.R. China.
Md Abdul Mannan Khan: Department of Accounting & Information Systems, Bangabandhu Sheikh Mujibur Rahman Science & Technology University, Gopalganj - 8100, Bangladesh
Anupam Das Gupta: Department of Finance, University of Chittagong, Chattogram-4331, Bangladesh

International Journal of Research in Business and Social Science (2147-4478), 2023, vol. 12, issue 9, 260-274

Abstract: The financial performance of banks relies heavily on properly utilizing their capital. However, bank ownership can have varying effects on the relationship between financial performance and capital. This study delves into this relationship by examining the impact of ownership on financial performance and bank capital. The study analyzes data from 44 commercial banks in Bangladesh and uses a two-step system generalized method of moments to address heteroscedasticity and autocorrelation issues. Unlike previous studies, this study confirms the significant effect of ownership on the relationship between bank financial performance and bank capital. The study's main findings are: (1) an inverted U-shaped relationship exists between bank capital and financial performance, implying that increasing capital can improve and reduce financial performance. (2) Private and Islamic commercial banks perform better than state-owned and conventional banks. (3) private-owned and Islamic commercial banks with higher capital are more likely to achieve higher profitability and financial success, while state-owned and conventional commercial banks with higher capital show lower profitability and weaker financial performance. Overall, this study offers significant practical implications for academics, researchers, and regulators interested in leveraging these findings. Key Words:Financial performance, Bank capital, Ownership, Two-step system GMM, Bangladesh

Date: 2023
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