The effect of capital structure towards banks performance in Malaysia / Nur Asyiqin Husna Mohamed Tarmizi

This paper seeks to investigate the effect of capital structure towards the banks performance particularly on commercial banks that are listed in Bursa Malaysia. There are many factors that affect the bank's performance to enable it to achieve its objective to enhance the value of the bank and shareholder's wealth. The ability of a bank to carry out its day-to-day operations and run its businesses is tightly related to capital structure. In many years, a lot of empirical studies have been conducted to explore if there is any relationship between capital structure and firm's performance and these studies produced mixed results. For this purpose, this research paper will be focused on four capital structures measures that consist of short-term debt ratio (STD), total debt ratio (TD), debt to equity ratio (DTE) and asset growth ratio (GROWTH) as the independent variables. Panel data regression model and multiple regression models were used to determine the effect of each capital structure to a dependent variable which is bank performance that will be measured by using the bank's return on equity (ROE). Sample in this study are 8 commercial banks that are listed in Bursa Malaysia and a 10 years' time frame was used to regain the data from each bank's annual report which results in a total of 80 observations. Results indicate that performance of banks in Malaysia is higher when they have higher debt to finance their assets and growth while the Malaysian banks performance will be lower when there is increment in total asset.