The relationship between capital structure and bank's profitability in Malaysia / Nur Ermiedza Radzali

Capital structure of a firm or a company refers to financing mix which are debt and equity. There a few previous studies in Malaysia on the determinants of capital structure of different sectors such as Construction Company and small to medium enterprises. However, no research was emphasized on the capital structure and profitability of banks. In the context of other countries such as, there are a lot of previous studies regarding the relationship between capital structure and bank's profitability in other countries such as Ghana, Ethiopia and Tanzania. However, most of the research did not focus on the core business activities of banks. The objective of this study is to determine the relationship between capital structure and banking profitability in Malaysia. Panel data analysis was used to meet the objective. The data were obtained from the data stream for six banks in Malaysia for the period of eleven years (2005-2015). The fixed effects model was employed. The findings shows that there is insignificant relationship between capital structure and bank's profitability (net interest margin) in Malaysia and it is supported by Anarfo (2015). Total debt to asset ratio and deposit to asset ratio have a positive significant relationship with the bank's profitability while the other three independent variables which are growth, spread and spread have an insignificant relationship with bank's profitability. The results has been discussed in chapter four to provide a meaningful information. As for the recommendation it is vital for the banks to focus on the significant variables in aiming to obtain a maximum profit of the core business activities and also in determining the optimal capital structure. It is also recommended for future researcher to consider financial institutions that are performing almost the same functions as banks as samples of the study add more observations to obtain a better result.