Income Diversification and Capital Structure: International Banks Evidence

Abstract

This study aims to contribute to the literature on a corporate capital structure by analyzing the effect of income diversification on the capital structure of international banking companies. This study uses panel data from 32 global banking companies in 2010-2019 with 320 firm-year observation obtained from stock exchanges in each country. The generalized method of moments is used as a statistical analysis tool for panel data. The results show that the income diversification carried out by international banking companies has a positive effect with high significance on the company's short-term debt structure. Therefore, income diversification can be a factor affecting the capital structure of international banking companies. Previous studies examined determinants of capital structure such as profitability, tangibility, firm size, firm growth, firm age, and non-debt tax shield. The findings of this study add the income diversification variable to the determinants of capital structure. This study is expected to bring benefits to banking management, investors, and regulators in the banking sector, as well as to make new contributions to the literature on corporate capital structure.