Determinants of capital structure of joint venture commercial banks in nepal

Abstract

This study investigates the key determinants of capital structure decisions in Nepalese joint venture commercial banks, focusing on the impact of profitability, firm size, liquidity, and growth. Using secondary data collected from six leading joint venture banks over a 14-year period (FY 2009–2022), the study employs descriptive statistics, correlation, and multiple regression analysis to examine the relationship between selected variables and two capital structure indicators: equity ratio and leverage ratio.

The findings indicate that profitability and size are the most influential determinants of capital structure among the sampled banks. Specifically, profitability shows a significant positive relationship with equity ratio and a negative association with leverage, supporting the pecking order theory. Firm size also plays a critical role, with larger banks tending to rely more on debt, consistent with the trade-off theory. Liquidity and growth, however, exhibit weak and statistically insignificant effects on capital structure decisions.

These results have important implications for bank managers, investors, and policymakers in Nepal. The study recommends that banks emphasize internal profitability and strategic asset growth to optimize their financing mix. Furthermore, regulatory bodies such as Nepal Rastra Bank may consider these findings when developing capital adequacy frameworks and financial stability policies. The study contributes to the limited literature on capital structure in Nepal‘s banking sector and provides a foundation for further research in emerging markets.

Keywords: Determinants of capital structure of joint venture commercial bank in Nepal