| Pub. Date | : Nov, 2023 |
|---|---|
| Product Name | : The IUP Journal of Bank Management |
| Product Type | : Article |
| Product Code | : IJBM021123 |
| Author Name | : Idris Ali Yimer and Hailu Tilahun |
| Availability | : YES |
| Subject/Domain | : Finance |
| Download Format | : PDF Format |
| No. of Pages | : 14 |
The selection of a company's capital structure is one of its most important strategic financial decisions. This paper seeks to determine the factors or components influencing the capital structure (CpS) of private banks in Ethiopia. Audited panel data was collected for the period 2005 to 2016 from seven private banks and the National Bank of Ethiopia. The panel data fixed effects estimation model was employed for data analysis, using EViews 8. It was observed that debt made up 85% of the entire capital of Ethiopia's private banks during the study period. The results showed that deposit-to-asset ratio substantially boosted the profitability of banks' core business operations, but net interest margin had a negligible positive impact. There was a statistically significant and favorable relationship between asset size and profitability. Conversely, an increase in loan-to-deposit ratio had a positive correlation with profitability, but a statistically insignificant impact on it. Consequently, banks should consider how best to manage their commitments, adequately mobilize deposits, and improve spread, size, and loans while decisions are made. Finally, it is suggested that future researchers assess banks' and other sectors' overall performance in the study's field.
One of the most crucial financial issues of a company is the selection of its capital composition. Nonetheless, there has been a great deal of discussion and research on it. The question as to what influences capital structure (CpS) choices and how they affect profitability is still up for debate (Yimer and Sharma, 2024). Companies highly rely on equity capital, while others rely on debt. For institutions, borrowing from fund providers is one option. The financial sources depend on the stakeholders of the company.