Impact of Capital Structure on the Performance of the Conventional Banks: Evidence from Pakistan

Abstract

This study examined the impact of capital structure on the performance of the conventional banks in Pakistan. The capital structure is the independent variable of the bank which includes debt ratio, debt to equity ratio and equity ratio whereas the performance of the conventional banks is the dependent variable which includes return on assets and return on equity. The study is taken on 14 conventional banks which are currently working in Pakistan. The data is of five years from period 2013 to 2017 and data was obtained from the annual reports of the banks. This study is analyzed by descriptive statistic, correlation and regression analysis. The result of this study shows that capital structure has huge effect on the performance of the banks. This study shows that all variable has significant relation with dependent and independent variables but there is only one independent variable (equity ratio) has positive relation with performance of the banks. This means that increase in equity ratio will increase performance (return on assets and return on equity) of the bank. Whereas other two independent variable has negative impact on the performance of the bank. This means that increase in debt ratio and debt to equity ratio will decrease the performance of the conventional banks