Greetings,
Could you please explain me shortly that can i take capital structure an independent variable?.if yes then how it effect the financial performance of a bank (Return on Assets,Return on Equity and Dividend payout?
I am sure you meant to ask if capital structure is a determinant of corporate governance. Basically you want to test if corporate governance practices followed by a firm impacts its financial performance with capital structure being a moderating variable.
However the way you have formulated your question goes in the opposite direction. What i mean to say is that corporate governance mechanisms might have an impact on a firm's capital structure but the vice-versa seems extremely unlikely (which is in your case). As far as I know corporate governance mechanisms include set of regulations followed by an organization to align the interest of various stakeholders. It is on the basis of those regulations and policies would a company determine its capital structure. Corporate governance in very simple terms lays down the ground rules by which the company would formulate its policies and then based on those rules it formulates its capital structure, dividend payout policy etc. With all humility I think that corporate governance should be the antecedent and I suppose you also wanted to ask the same thing, but articulation went awry.
Coming to second part of the question about bank performance. Most of the papers exclude banking and financial companies from their data set to begin with because banks are a totally different creature. Their assets are different, operations are different, they have their exclusive standards in some of the cases etc. Reviewing some good papers that focus solely on banks would be a good starting point for you.
I think you need to figure out block holdings in the capital structure and block holding determines the corporate governance. Just see the attached paper.
Article Cash and Cash-Equivalent Holdings of Companies: Does the Num...
I am of the opinion that CS - moreso in terms of the ownership ratio can be a significant factor influencing CG. For example in some countries the ownership of big companies are concentrated among a few family - they are often the major shareholders and directors of the company. But in general we may expect a direct link between CS and profitability - so it appears that you are looking for an indirect link - i.e CS affect CG which then affects FP
KP
Not only the corporate capital structure is the only determinant for firm performance i think in case of pakistan for your study group affiliation is the sound determinant of firm performance
See group affiliated and unaffiliated firms anf their performance
The capital structure can be an efficient control mechanism of agency cost.
Is capital structure one determinant of corporate governance that affects the firm performance?
Capital Structure depends of numerous policies, regulatory requirements, need of business, economic conditions and the list goes on.....Corporate Governance provides with standards and norms to keep the interest of all stakeholders intact within the corporation. Firm performance can be measured in various forms. You're therefore requested to revisit the research question as Return on Assets,Return on Equity and Dividend payout are not directly controlled by Independant non executive directors moreover, banks' deal in the money of people therefore other measures like capital adequacy, risk management, asset quality, liquidity etc may be suitable for you to measure.
It is interactive. Structure determines governance and id is determined by it, especially as between majority and minority shareholders and especially in Asia. Performance in conventional even studies terms is dealt with in agency theory modified by positive accounting theory with an underlying thread that the more power majority shareholders have over the Board and the debt holders, the higher earnings will be for them. However, nothing in governance overrides the eternal business verities of what drives a profitable business to succeed, increase earnings quality and maintain solvency. Governance is icing on the cake, not the cake itself.
Dear Muhammad,
I think that capital structure of a firm depends on many factors like its risk profile, its return and cash flows (to allow for interest and principal payments or dividend payments), the availability and hence, the cost of capital, , the time horizon of the Investment projects demanding the capital, the general economic environment and many others. Thus, in my opinion it could prove difficult to establish a clear link between capital structure as an independent variable and corporate governance (CG) mechanisms of the firm. On the other hand, if you choose a CG variable like ownership concentration as an independent variable you probably could establish some relationship with capital structure. Just as an example: it would make sense for large block holders (CG variable) to continue to rely on equity (dependent variable of capital structure).
Paul
Yes it can be taken as independent variable and it's impact on the above said variables can he studied through multiple regression analysis. Apart from roe, dividend payout, variables like BUSINESS PER EMPLOYEE and operation specific ratios like business or revenue per brach etc can be taken since the study is on financial performance of banks.
Riyaz.
Hi,
Capital structure is a very complex variable. This variable is endogeneously determined. Sometimes, It could happen that reverse causality takes place. It means that performance may be a determinant of capital structure. Thus you have to use an instrumental variable to perform your regressionsn, or benefit from a quasi experiment..
Best regards.
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