CAPITAL STRUCTURE AND ITS IMPACT ON PERFORMANCE OF NEPALESE COMMERCIAL BANKS

Abstract

This study examines the capital structure and its impact on performance of Nepalese commercial banks. The main objectives of this study are to examine the determinants of capital structure in Nepalese commercial banks, to examine the relationship between ROA, Bank size, Growth rate and Tangibility on TDA and TDE and to analyze the impact of ROA, Bank size, Growth rate, and Tangibility on TDA and TDE in commercial banks of Nepal. Return on Assets, Bank size, Growth rate and Tangibility are independent variables and Total debt assets and Total debt equity are the dependent variables in this study. Descriptive statistics, correlation analysis, and multiple regression were used to present data. The major finding of this study showed that TDA shows a strong positive correlation with TDE, indicating that higher asset financing through debt increases the debt-to-equity ratio. TDA and ROA are positively correlated, linking higher debt levels to increased profitability. TDE also correlates positively with ROA, highlighting the relationship between leverage and profitability. Larger banks exhibit higher leverage and profitability, as shown by their positive correlation with both TDE and ROA. Tangibility strongly correlates with TDA and TDE, suggesting that more tangible assets lead to higher leverage ratios. ROA has a significant negative relationship with TDA, while Bank Size shows an insignificant negative association. GR positively and significantly relates to TDA, whereas Tangibility has a positive but insignificant relationship. These results reflect varying impacts of the variables on TDA. The unstandardized coefficients show how changes in predictors affect Total Debt to Equity (TDE). ROA has a significant negative relationship with TDE, indicating an inverse association. Bank Size shows a positive but insignificant relationship with TDE. GR demonstrates a significant positive relationship with TDE, suggesting higher growth rates increase TDE. Tangibility has a negative association with TDE, but the relationship is not statistically significant.