Abstract:
Profitability is the relative measure that defines the association of different factors
in profit. This study investigates different determinants that effect banks’ profitability in
context Pakistani banking sector. The descriptive analysis shows that the banking sector
is unique compared to other industry sectors as banking sector in Pakistan is greatly
regulated. And commercial, mutual, co-operative and government-owned banks jointly
operate in the sector. The empirical part of present study discusses specially the issues
related to ownership and regulation. The analysis extends research of previous
researchers by examining additional determinants of banks’ profitability and by focusing
on the Pakistani banking sector. Unbalanced panel data of 20 banks between 2009 and
2013 is used in present study. Present study shows that profit diligences still exist in the
banking sector. The advance econometric technique is used to conduct the analysis in Eviews
8. The finding of present study also suggests that the equity-to-asset ratio is
positively related to banks’ profitability supporting the bankruptcy cost hypothesis or
signaling hypothesis. There is no evidence found that the funding- and liquidity structure
are determinants for profitability, both proxies appears to be insignificant. Besides, little
evidence is found for the agency theory.
