IMPACT OF CAPITAL STRUCTURE ON PROFITABILITY OF DEVELOPMENT BANKS IN NEPAL

Abstract

This study is examined the impact of capital structure on profitability of development banks in Nepal. The main objectives of this study are to assess the capital structure and profitability of development banks in Nepal, to examine the relationship between capital structure and profitability of development banks in Nepal, and to analyze the impact of capital structure on profitability of development banks in Nepal. Debt/equity ratio, Long-term debt ratio, Shortterm debt ratio and Total Debt ratio are the independent variables and ROA and ROE are the dependent variable in this study. Mean, standard deviation, correlation and multiple regression analysis are taken to present data. The major finding of this study The Long-Term Debt Ratio (LTDR) has a significant negative impact on ROA, as evidenced by its unstandardized coefficient. This suggests that an increase in the reliance on long-term debt is associated with a decrease in ROA. On the other hand, the Short-Term Debt Ratio (STDR) and Total Debt Ratio (TDR) have positive and significant impacts on ROA. Return on Assets (ROA) and Return on Equity (ROE) exhibit a strong negative correlation of ROA increases, ROE tends to decrease, and vice versa. This relationship implies that higher returns on assets may not necessarily translate into higher returns on equity, indicating potential differences in the companies' capital structures or financial leverage. The Debt/Equity Ratio (D/E) is positively correlated with ROA and negatively correlated with ROE. This suggests that companies with higher debt-to-equity ratios tend to have higher returns on assets but lower returns on equity, reinforcing the notion that higher financial leverage influences these performance metrics differently. Keywords: Capital Structure, Long-Term Debt Ratio, Return on Assets, Return on Equity, Total debt