BALANCING THE BOOKS: EXPLORING FINANCIAL PERFORMANCE METRICS AND THEIR INFLUENCE ON CAPITAL STRUCTURE IN PRIVATE COMMERCIAL BANKS OF BANGLADESH

Abstract

The capital structure of corporate entities, particularly in the financial sector, remains a focal point in financial research. Yet, this area is notably underexplored on a global scale, with a conspicuous dearth of studies, especially concerning emerging economies like Bangladesh. This research aims to bridge this gap by delving into the determinants of the capital structure of commercial banks in Bangladesh, presenting a distinctive contribution to the literature. Leveraging panel data from 22 out of 61 scheduled banks, spanning the years 2011 to 2020, this study incorporates unique variables, such as non-performing loan ratios and loan loss provision to total non-performing loans, enriching the understanding of the factors shaping capital structures.

Twelve independent variables, ranging from traditional metrics like bank size and profitability to nuanced factors like coverage ratio and investment structure, were identified for scrutiny. The dependent variable, total debt to total equity (TDTE), serves as a proxy for the capital structure or leverage of commercial banks. The Feasible Generalized Least Squared (FGLS) Regression Model is employed to unravel the intricate relationships between these variables.

The findings illuminate the nuanced impact of various factors on the capital structure of commercial banks in Bangladesh. Notably, return on assets, earnings per share, asset growth, asset structure, investment structure, cost per loan assets, and loan loss provisioning emerged as significant determinants. Conversely, bank size, liquidity, capital adequacy, and non-performing loan ratios showed no discernible influence on the capital structure of these banks. This nuanced exploration of factors influencing capital structures not only augments the empirical knowledge for Bangladesh but also offers valuable insights into the broader global context.

This study not only adds empirical evidence to the ongoing discourse on capital structure but also sheds light on areas ripe for future investigation. As the financial landscape evolves, the identification of influential factors and their evolving dynamics becomes paramount for policymakers, financial institutions, and researchers alike.