Abstract:
Purpose- Major Aim of this study was to evaluate the impact of capital structure on profitability
of banks in Pakistan. The puipose is to determine the optimal level of debt and equity which can
help to give banks the maximum return which they can achieve.
Methodology/sample- . For this study three big banks of Pakistan has taken which is listed on
Karachi stock exchange (KSE) Habib Bank Limited, MCB, United bank Limited and 10 years of
data is selected from 2004 to. 2013. Regression models ANOVA and Correlation tests were
applied to check the relationship between the capital structure and profitability of banks of
Pakistan. Profitability is measured by Return on asset (ROA), return on Equity (ROE) and Net
profit. Capital structure is determined by Short term debt (STD), Long term debt (LTD) and
Equity. Data ofthese three banks of Pakistan was collected from their annual reports.
Findings- The analysis and findings of this study is that there is positive and significant
relationship between determinants of capital structure and profitability of banks except Long
term debt (LTD).
Practical Implications- The outcomes of the research might help the decision makers of banks
capital structure to understand the impact of debt and equity level on profitability of banks in
Pakistan and it will also help to increase banks profit levels.
