Determinants of capital structure of australian trading banks

Sharpe, Ian G.

doi:10.1007/bf01734388

Cited by 14 publications

(8 citation statements)

References 30 publications

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“…A similar conclusion is reached by Juca et al, (2012a).This study was conducted on 30 North American banks for the period of 2007-2010 and concluded that the standard determinants explaining the capital structure of non-financial firms also have a significant power in explaining the banks' capital structure (Juca, 2012a). Sharpe (1995) with data on Australian trading banks for the period of 1967-1988 found statistical evidence supporting Myer's Pecking Order Theory in the presence of transaction costs and asymmetric information. Altunbas et al (2007) studied the relationship between capital, risk, and efficiency for large European banks for the period of 1992-2000.…”

Section: Literature Reviewmentioning

confidence: 67%

The Determinants of Banksâ€™ Capital Adequacy Ratio: Some Evidence from South Eastern European Countries

Aktaş¹,

Bakin²,

Çelik³

2015

JEBS

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The legal authorities set the minimum capital level for the banks. Recent studies have shown that variables used to explain capital structure of non financial firms, such as size, profit, leverage, liquidity and risk, could also be helpful in understanding banksâ€™ capital structure. This paper aims to evaluate the impact of bank-dimensional and environmental factors on bankâ€™s capital adequacy ratio in South Eastern European (SEE) region. Size, profitability (ROA), leverage, liquidity, net interest margin (NIM), and risk are used as bank-dimensional explanatory variables in a feasible GLS regression model. On the other hand, economic growth rate, inflation, real interest rate, Eurozone stock market volatility index, deposit insurance coverage, and governance indicator are added to the original model to control for environmental factors. Annual data from 71 commercial banks belong to 10 different countries in SEE region for the period of 2007 â€“ 2012 is used. This region mainly consists of the â€œtransition economiesâ€ which are still experiencing the difficulties of turning into efficient market economies with high economic potentials. The results of our study show that among the bank dimensional explanatory variables size, ROA, leverage, liquidity, net interest margin and risk have statistically significant effects in determining CAR for the banks in the region. Among the environmental factors, economic growth rate, Eurozone stock market volatility index, deposit insurance coverage, and governance have statistically significant effects in determining CAR for the banks in the SEE region.

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Section: Literature Reviewmentioning

confidence: 67%

The Determinants of Banksâ€™ Capital Adequacy Ratio: Some Evidence from South Eastern European Countries

Aktaş¹,

Bakin²,

Çelik³

2015

JEBS

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“…Of the plethora of capital structure theories, the trade-off and pecking order theories have been the most empirically tested with evidence in favor of both. Some of the significant studies are (Benito, 2003;Tran et al, 2020;Hoque and Kashefi-Pour, 2015;Rajan and Zingales, 1995;Sharpe, 1995).…”

Section: Literaturementioning

confidence: 99%

How bank capital structure decision-making change in recessions: Covid-19 evidence from Pakistan

Mohammad

2021

AJEB

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PurposeThis study contributes to existing literature by investigating bank capital structure dynamics during the Covid-19 pandemic. The role of contemporary bank-specific determinants of capital structure during this period is analyzed.Design/methodology/approachAn independent t-test is carried out to check the response of bank leverage to the crisis. Using fixed effect estimation and difference general method of moments (GMM), the impact of the shock is examined. An unbalanced quarterly data set from 2016q1 to 2020q3 of all commercial banks in Pakistan is used.FindingsThe study finds that due to procyclicality of capital, during the Covid-19 crisis, the banks preempted a fall in capital and improved their capital positions. The role of bank specific variables in determining capital structure like profitability, size and competition weakened during this period. Evidence suggests that policy rate intervention by the central bank was a significant factor in capital structure decisions during the Covid-19 period. The study finds that macroeconomic shocks have significant impact on capital structure decision-making of banks which goes beyond the bank-specific factors.Originality/valueIt finds evidence of a moderating role of monetary policy in capital structure decision-making which has not been previously highlighted in literature. Monetary policy is found to become an important factor deciding the capital structure of banks during the Covid-19 first 3 quarters. This study also explores the impact of Covid-19 on the bank-specific determinants of capital structure of banks.

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“…On the other hand, several empirical studies were conducted to find the determinants of capital structure in the banking industry. Sharpe (1995) examined the determinants of bank capital ratios; the study used a pooled time-series/cross-sectional data of Australian trading banks over the period 1967 to 1988. The results showed little evidence to support the tax benefit/bankruptcy cost trade-off; they found broad evidence consistent with the pecking order hypothesis in the presence of transaction cost and information asymmetry.…”

Section: Literature Reviewmentioning

confidence: 99%

The capital structure decisions of Islamic banks in the GCC

Al-Hunnayan

2020

JIABR

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Purpose This study aims to find the determinants of the capital structure of Islamic banks in the Gulf Cooperation Council countries (GCC). The uniqueness of the case of Islamic banks stems from the fact that they are not only subject to the supervision of financial regulatory bodies that organize the banking sector (e.g. central banks) but also subject to the guidelines of Shari’ah law governing their financial transactions, products and contracts. Such characteristics are expected to have an impact on the capital structure decisions of Islamic banks compared to their conventional counterparts. Design/methodology/approach To achieve the research purpose, an empirical model was constructed to describe the relationship between leverage and the independent variables. The empirical model was tested through multivariate regression analysis using a panel data approach of 12 Islamic banks in the GCC for the period 2005-2014. Three types of regression analysis were used as follows: ordinary least squares (OLS), fixed-effect and random-effect regressions on panel data. Findings The research findings show that the leverage of Islamic banks in the GCC is positively related to size of the firm (SIZE) and growth opportunity (GROWTH); and it is negatively related to profitability of the firm (ROA), tangibility of the firm’s assets (TANG) and financial market development (MRKT). The results indicate that larger Islamic banks tend to be relatively more diversified with higher credit ratings, which lower their cost of funding and relatively increase its profitability and the bank’s customer/depositor base. The results also show that higher profitability ratios indicate relatively more internal funds to cover future investments, which leads to less reliance on external funds in the form of debt and/or equity. However, the higher the growth opportunities of Islamic banks, the faster the depletion rate of internal funding, and the more external debt financing is acquired to cover the expansion plans. In addition, the results show that in developed financial markets, savers tend to purchase less traditional depository products, and they prefer to invest directly in the financial markets to avoid higher commissions. The results are in line with the pecking order theory, which states that Islamic banks in the GCC tend to prefer sources of funds that have the least transaction cost and reveal minimal information to competitors. Hence, bank management resort to internally generated funds by its operations rather than acquiring external funds. Furthermore, the results are weakly explained by the agency theory, which states that as the firm assets become more tangible, the required monitoring cost is reduced; and hence, shareholders will have less tendency to raise more debt for the purpose of sharing the monitoring cost with debt holders. Research limitations/implications This research study contributes to the theory of capital structure in re-validating the findings of a previous theoretical and empirical study on capital structure in the GCC and abroad. It helps understand the capital structure of Islamic banks in comparison with financial and non-financial firms. Future research is recommended in several areas. In terms of the methodology, it is recommended to conduct the research topic surveying management and financial executives of Islamic banks in the GCC; this will validate the results using a triangular approach supported by the findings of this paper. It is also recommended to apply the research methodology in other parts of the world where Islamic banking exists. Finally, as studies on the capital structure of financial institutions and other regulated sectors are rare, it is recommended to intensify research effort in these sectors to strengthen our knowledge of capital structure. Practical implications From a practical perspective, this research bridges the gap between theory and practice in many aspects. The findings can serve Islamic bank executives as guidelines to understand the market and competitive reaction in response to capital structure decisions. On the other hand, research analysts and equity holders can use the findings in their debt and equity research valuations, assessment of the size of dividends and profit distributions, and to make more informed decisions to buy/sell financial securities. Furthermore, the findings help regulatory bodies to issue informed regulations in relation to capital adequacy ratios, reserve requirements, provisions and payout decisions to achieve policy intended purpose. In addition, organizations that are responsible for setting accounting and audit standards for Islamic banks will learn more about the industry practice; and hence, be able to pass practical standards. Moreover, the findings realize the recommendations of international financial regulatory bodies, such as the International Monetary Fund (IMF), the World Bank (WB) and other concerned organizations that emphasize the importance of further understanding of financial institution practices, to enable more effective formulation of risk management techniques, which may prevent future financial crisis. Originality/value This paper was amongst the few research studies conducted on determinants of capital structure in the GCC and specifically on the Islamic banking sector.

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Determinants of capital structure of australian trading banks

Cited by 14 publications

References 30 publications

The Determinants of Banksâ€™ Capital Adequacy Ratio: Some Evidence from South Eastern European Countries

The Determinants of Banksâ€™ Capital Adequacy Ratio: Some Evidence from South Eastern European Countries

How bank capital structure decision-making change in recessions: Covid-19 evidence from Pakistan

The capital structure decisions of Islamic banks in the GCC

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