Determinants of Capital Structure of Nepalese Commercial Banks

Abstract

This study examines the determinants of capital structure in Nepalese Commercial Banks. The study is based on secondary data of four commercial banks with 40 observations for the period 2010/11 to 2019/20. The total debt to total assets and total debt to total equity were selected as dependent variables while return on assets, bank size, assets tangibility, assets growth and liquidity are the independent variables. The data were collected from annual reports of concerned sample bank. The Pearson's correlation coefficients and regression models are estimated to test the significance and impact of bank specific factors on the capital structure of Nepalese commercial banks. The result shows that banks size and assets tangibility are positively correlated with total debt to total assets whereas return on assets, assets growth are negatively correlated with total debt to total assets. Likewise return on assets, bank size, assets tangibility, assets growth is negatively correlated with total debt to total equity. It indicates that higher assets growth, return on assets over would be the total debt to total assets and total debt to total equity. Likewise, higher the bank size and assets tangibility higher would be the total debt to total assets. This study concludes that return on assets, bank size and assets tangibility are the most influencing factors and assets growth are the least influencing factor affecting the capital structure of Nepalese commercial banks. The study recommends as proper matching between assets and liabilities structure is required, banks should pay attention towards this aspect. Outside security analysts and comparative industry have only a minimal effect on the development of these targets.