Firm Specific and Macro-Economic Determinants of Corporate Capital Structure: A Case of Nepalese Commercial Banks

Abstract

This study examines the firm specific and macroeconomics determinants of capital structure in Nepalese commercial banks. The ratio of total debt to total assets, ratio of long term debt to total assets, and ratio of short term debt to total assets are the dependent variables. Bank size, assets growth, liquidity, profitability, and net worth are the independent variables. Bank specific data are collected from the Banking and Financial Statistics and Bank Supervision Report published by Nepal Rastra Bank and annual reports of the selected banks and macroeconomic data are collected from Economic Survey published by Ministry of Finance. The survey is based on 140 observations from 20 commercial banks in Nepal during the period of 2008 to 2014. The multiple regression models are estimated to test the significance and importance of capital structure in Nepalese commercial banks. The results show that there is positive relationship of bank size and gross domestic product with total debt to total assets ratio. The result also shows negative relationship of liquidity ratio, profitability and net worth with total debt to total assets ratio. This indicates that increase in liquidity, profitability and net worth leads to decrease in total debt to total assets ratio. The study revealed that bank size, profitability, net worth, gross domestic product and inflation have negative impact on long term debt to total assets. However, assets growth and liquidity ratio have positive impact on long term debt to total assets. The study also shows that there is positive impact of bank size, profitability, net worth, gross domestic product and inflation on short term debt to total assets ratio.