Capital Structure Determinants for Local Commercial Banks: Thailand Evidence
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Published:
May 15, 2019
Keywords:
Capital structure, leverage, banks, Thailand, fixed-effects regression model
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Abstract
This study explores significant determinants of bank capital structure, and how they help to explain these structures. A fixed-effects regression model was applied to analyze Thai local banks during the period from 2004-2014. Two measurements of bank leverage were used, namely book value leverage ratio and risk-weighted book value leverage ratio. Firm-level determinants were bank profitability, risk, growth, and liquid assets with GDP growth rate, inflation rate, unemployment rate, and public debt as country-level determinants. Empirical results indicated that both firm-level and country-level determinants had statistically significant relationships with the book value leverage ratio, except for the unemployment rate. However, when we examined the influence of these determinants on the risk-weighted book value leverage ratio, only growth, liquid assets, unemployment rate, and public debt showed a statistically significant relationship. These empirical findings may assist bank managers in implementing relevant policies to ensure soundness and stability in the Thai banking sector.
Article Details
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Research Articles
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Copyright: Asia-Pacific International University reserve exclusive rights to publish, reproduce and distribute the manuscript and all contents therein.
References
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Berlin, M. (2011). Can We Explain Banks' Capital Structure? Business Review, Q2, 1-11.
Booth, L., Aivazian, V., Demirguc-Kunt, A., & Maksimovic, V. (2001). Capital Structure in Developing Countries. The Journal of Finance, 56(1), 87-130.
Brewer, E., Kaufman, G., & Wall, L. (2008). Bank Capital Ratios Across Countries: Why Do They Vary? Journal of Financial Services Research, 34(2-3), 177-201.
Butt, S., Khan, Z., & Nafees, B. (2013). Static Trade-off Theory or Pecking Order Theory Which One Suits Best to the Financial Sector: Evidence from Pakistan. European Journal of Business and Management, 5(23), 131-140.
Camara, O. (2012). Capital Structure Adjustment Speed and Macroeconomic Conditions: U.S. MNCs and DCs. International Research Journal of Finance and Economics, 84, 106–120.
Cook, D., & Tang, T. (2010) Macroeconomic Conditions and Capital Structure Adjustment Speed. Journal of Corporate Finance, 16(1), 73-87. doi:https://doi.org/10.1016/j.jcorpfin.2009.02.003.
De Jong, A., Kabir, R., & Nguyen, T. (2008). Capital Structure around the World: the Roles of Firm and Country Specific Determinants. Journal of Banking & Finance, 32(9), 1954-1969.
Deesomsak, R., Paudyal, K., & Pesscetto, G. (2004). The Determinants of Capital Structure: Evidence from the Asia Pacific Region. Journal of Multinational Financial Management, 14(4-5), 384-405.
Dincergok, B., & Yalciner, K. (2011). Capital Structure Decisions of Manufacturing Firms' in Developing Countries. Middle East Finance and Economics, 12, 86-100.
Ding, C., Wu, C., & Chang, P. (2013). The Influence of Government Intervention on the Trajectory of Bank Performance during the Global Financial Crisis: A Comparative Study among Asian Economies. Journal of Financial Stability, 9(4), 556-564. doi:http://dx.doi.org/ 10.1016/j.jfs.2012.11.002
Fama, E., & French, K. (1998). Taxes, Financing Decisions, and Firm Value. The Journal of Finance, 53(3), 819-843.
Frank, M., & Goyal, V. (2009). Capital Structure Decisions: Which Factors Are Reliably Important? Financial Management, Spring, 1-37.
Greenbaum, S., Thakor, A., & Boot, A. (2016). Contemporary Financial Intermediation (3rd ed.). San Diego: Elsevier Inc.
Gropp, R., & Heider, F. (2010). The Determinants of Bank Capital Structure. Review of Finance, 14, 587-622. doi:10.1093/rof/rfp030
Hall, G., Hutchinson, P., & Michaelas, N. (2004). Determinants of the Capital Strucutre of European SMEs. Journal of Business Finance & Accounting, 31(5-6), 711-728.
Jensen, M., & Meckling, W. (1976). Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure. Journal of Financial Econmomics, 3(4), 305-360.
Joeveer, K. (2013). Firm, Country and Macroeconomic Determinants of Capital Structure: Evidence from Transition Economies. Journal of Comparative Economics, 41(1), 294-308. doi:http:// dx.doi .org / 10.1016/ j.jce.2012.05.001
Kayo, E., & Kimura, H. (2011). Hierarchical Determinants of Capital Structure. Journal of Banking & Finance, 35(2), 358-371.
Kraus, A., & Litzenberger, R. (1973). A State-Preference Model of Optimal Financial Leverage. The Journal of Finance, 28(4), 911-922.
Lemma, T., & Negash, M. (2013). Institutional, Macroeconomic and Firm-specific Determinants of Capital Structure: The African Evidence. Management Research Review, 36(11), 1081-1122. doi:https:// doi.org/10.1108/ MRR-09-2012-0201
Lemmon, M., Roberts, M., & Zender, J., (2008). Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure. Journal of Finance 63, 1575-1608. doi:http://dx.doi.org/10.1111/j.15406261. 2008.01369.x
Mishkin, F. (1999). Lessons from the Asian Crisis. Journal of International Money and Finance, 18, 709-723.
Modigliani, F., & Miller, M. (1958). The Cost of Capital, Corporate Finance and the Theory of Investment. The American Economic Review, 48(3), 261-297.
Modigliani, F., & Miller, M. (1963). Corporate Income Taxes and the Cost of Capital: A Correction. The American Economic Review, 53(3), 433-443.
Mokhova, N., & Zinecker, M. (2014). Macroeconomic Factors and Corporate Capital Structure. In Procedia - Social and Behavioral Sciences, 110, 530-540. doi:http://doi.org/10.1016/j.sbspro.2013.12.897
Myers, S. (1984). The Capital Structure Puzzle. The Journal of Finance, 39(3), 574-592.
Myers, S., & Majluf, N. (1984). Corporate Financing and Investment Decisions when Firms have Information that Investors Do Not Have. Journal of Financial Econmomics, 13(2), 187-221.
Pandey, I. (2001). Capital Structure and the Firm Characteristics: Evidence from an Emerging Market IIMA Working paper no. 2001-10-04. India: Indian Institute of Management Ahmedabad.
Rajan, R., & Zingales, L. (1995). What do We Know About Capital Structure? Some Evidence from International Data. The Journal of Finance, 50(5), 1421-1460.
Sangeetha, M., & Sivathaasan, N. (2013). Factors Determining Capital Structure: A Case Study of Listed Companies in Sri Lanka. Research Journal of Finance and Accounting, 4(6), 236-247.
Teixeira, J., Silva, F., Fernandes, A., & Alves, A. (2014). Banks' Capital, Regulation and the Financial Crisis. North American Journal of Economics and Finance, 28, 33-58.
Thippayana, P. (2014). Determinants of Capital Structure in Thailand. Procedia Social and Behavioral Sciences, 143, 1074-1077.
Titman, S., & Wessels, R. (1988). The Determinants of Capital Structure Choice. The Journal of Finance, 43(1), 119.
Tongkong, S. (2012). Key Factors Influencing Capital Structure Decision and Its Speed of Adjustment of Thai Listed Real Estate Companies. Procedia-Social and Behavioral Sciences, 40, 716-720.
Udomsirikul, P., Jumreornvong, S., & Jiraporn, P. (2011). Liquidity and Capital Structure: The Case of Thailand. Journal of Multinational Financial Management, 21(2), 106-117.
Ukaegbu, B., & Oino, I. (2014). The Determinants of Capital Structure: A Comparison of Financial and NonFinancial Firms in a Regulated Developing Country - Nigeria. African Journal of Economic and Management Studies, 5(3), 341-368. doi:http://dx.doi.org/10.1108/AJEMS-11-2012-0072
Allen, D., Napaporn, N., & Robert, J. (2013). The Determinants of Capital Structure: Empirical Evidence from Thai Banks. Information Management and Business Review, 5(8), 401-410.
Al-Shubiri, F. (2011). Capital Structure and Market Power: Evidence from Jordanian Banks. Managing Global Transitions, 9(3), 283-310.
Amidu, M. (2007). Determinants of Capital Structure of Banks in Ghana: An Empirical Approach. Baltic Journal of Management, 2(1), 67-79.
Baltaci, N., & Ayaydin, H. (2014). Firm, Country and Macroeconomic Determinants of Capital Structure: Evidence from Turkish Banking Sector. Emerging Markets Journal, 3(3), 46-58.
Bank of Thailand. (2012). Issuance of BOT Notifications on Capital Adequacy Framework under Basel III [Press release]. Retrieved from https://www.bot.or.th/thai/pressandspeeches/press/news2555/ n6455e.pdf
Bank of Thailand. (2016a). Financial Institutions under the Bank of Thailand's Supervision. Retrieved from https://www.bot.or.th/English/BOTStoryTelling/Pages/FinancialInstitutions_StoryTelling_AcademicAn dStudent.aspx
Bank of Thailand. (2016b). Names, Addresses and Websites of Financial Institutions. Retrieved from https://www.bot.or.th/English/FinancialInstitutions/WebsiteFI/Pages/InstList.aspx
Berlin, M. (2011). Can We Explain Banks' Capital Structure? Business Review, Q2, 1-11.
Booth, L., Aivazian, V., Demirguc-Kunt, A., & Maksimovic, V. (2001). Capital Structure in Developing Countries. The Journal of Finance, 56(1), 87-130.
Brewer, E., Kaufman, G., & Wall, L. (2008). Bank Capital Ratios Across Countries: Why Do They Vary? Journal of Financial Services Research, 34(2-3), 177-201.
Butt, S., Khan, Z., & Nafees, B. (2013). Static Trade-off Theory or Pecking Order Theory Which One Suits Best to the Financial Sector: Evidence from Pakistan. European Journal of Business and Management, 5(23), 131-140.
Camara, O. (2012). Capital Structure Adjustment Speed and Macroeconomic Conditions: U.S. MNCs and DCs. International Research Journal of Finance and Economics, 84, 106–120.
Cook, D., & Tang, T. (2010) Macroeconomic Conditions and Capital Structure Adjustment Speed. Journal of Corporate Finance, 16(1), 73-87. doi:https://doi.org/10.1016/j.jcorpfin.2009.02.003.
De Jong, A., Kabir, R., & Nguyen, T. (2008). Capital Structure around the World: the Roles of Firm and Country Specific Determinants. Journal of Banking & Finance, 32(9), 1954-1969.
Deesomsak, R., Paudyal, K., & Pesscetto, G. (2004). The Determinants of Capital Structure: Evidence from the Asia Pacific Region. Journal of Multinational Financial Management, 14(4-5), 384-405.
Dincergok, B., & Yalciner, K. (2011). Capital Structure Decisions of Manufacturing Firms' in Developing Countries. Middle East Finance and Economics, 12, 86-100.
Ding, C., Wu, C., & Chang, P. (2013). The Influence of Government Intervention on the Trajectory of Bank Performance during the Global Financial Crisis: A Comparative Study among Asian Economies. Journal of Financial Stability, 9(4), 556-564. doi:http://dx.doi.org/ 10.1016/j.jfs.2012.11.002
Fama, E., & French, K. (1998). Taxes, Financing Decisions, and Firm Value. The Journal of Finance, 53(3), 819-843.
Frank, M., & Goyal, V. (2009). Capital Structure Decisions: Which Factors Are Reliably Important? Financial Management, Spring, 1-37.
Greenbaum, S., Thakor, A., & Boot, A. (2016). Contemporary Financial Intermediation (3rd ed.). San Diego: Elsevier Inc.
Gropp, R., & Heider, F. (2010). The Determinants of Bank Capital Structure. Review of Finance, 14, 587-622. doi:10.1093/rof/rfp030
Hall, G., Hutchinson, P., & Michaelas, N. (2004). Determinants of the Capital Strucutre of European SMEs. Journal of Business Finance & Accounting, 31(5-6), 711-728.
Jensen, M., & Meckling, W. (1976). Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure. Journal of Financial Econmomics, 3(4), 305-360.
Joeveer, K. (2013). Firm, Country and Macroeconomic Determinants of Capital Structure: Evidence from Transition Economies. Journal of Comparative Economics, 41(1), 294-308. doi:http:// dx.doi .org / 10.1016/ j.jce.2012.05.001
Kayo, E., & Kimura, H. (2011). Hierarchical Determinants of Capital Structure. Journal of Banking & Finance, 35(2), 358-371.
Kraus, A., & Litzenberger, R. (1973). A State-Preference Model of Optimal Financial Leverage. The Journal of Finance, 28(4), 911-922.
Lemma, T., & Negash, M. (2013). Institutional, Macroeconomic and Firm-specific Determinants of Capital Structure: The African Evidence. Management Research Review, 36(11), 1081-1122. doi:https:// doi.org/10.1108/ MRR-09-2012-0201
Lemmon, M., Roberts, M., & Zender, J., (2008). Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure. Journal of Finance 63, 1575-1608. doi:http://dx.doi.org/10.1111/j.15406261. 2008.01369.x
Mishkin, F. (1999). Lessons from the Asian Crisis. Journal of International Money and Finance, 18, 709-723.
Modigliani, F., & Miller, M. (1958). The Cost of Capital, Corporate Finance and the Theory of Investment. The American Economic Review, 48(3), 261-297.
Modigliani, F., & Miller, M. (1963). Corporate Income Taxes and the Cost of Capital: A Correction. The American Economic Review, 53(3), 433-443.
Mokhova, N., & Zinecker, M. (2014). Macroeconomic Factors and Corporate Capital Structure. In Procedia - Social and Behavioral Sciences, 110, 530-540. doi:http://doi.org/10.1016/j.sbspro.2013.12.897
Myers, S. (1984). The Capital Structure Puzzle. The Journal of Finance, 39(3), 574-592.
Myers, S., & Majluf, N. (1984). Corporate Financing and Investment Decisions when Firms have Information that Investors Do Not Have. Journal of Financial Econmomics, 13(2), 187-221.
Pandey, I. (2001). Capital Structure and the Firm Characteristics: Evidence from an Emerging Market IIMA Working paper no. 2001-10-04. India: Indian Institute of Management Ahmedabad.
Rajan, R., & Zingales, L. (1995). What do We Know About Capital Structure? Some Evidence from International Data. The Journal of Finance, 50(5), 1421-1460.
Sangeetha, M., & Sivathaasan, N. (2013). Factors Determining Capital Structure: A Case Study of Listed Companies in Sri Lanka. Research Journal of Finance and Accounting, 4(6), 236-247.
Teixeira, J., Silva, F., Fernandes, A., & Alves, A. (2014). Banks' Capital, Regulation and the Financial Crisis. North American Journal of Economics and Finance, 28, 33-58.
Thippayana, P. (2014). Determinants of Capital Structure in Thailand. Procedia Social and Behavioral Sciences, 143, 1074-1077.
Titman, S., & Wessels, R. (1988). The Determinants of Capital Structure Choice. The Journal of Finance, 43(1), 119.
Tongkong, S. (2012). Key Factors Influencing Capital Structure Decision and Its Speed of Adjustment of Thai Listed Real Estate Companies. Procedia-Social and Behavioral Sciences, 40, 716-720.
Udomsirikul, P., Jumreornvong, S., & Jiraporn, P. (2011). Liquidity and Capital Structure: The Case of Thailand. Journal of Multinational Financial Management, 21(2), 106-117.
Ukaegbu, B., & Oino, I. (2014). The Determinants of Capital Structure: A Comparison of Financial and NonFinancial Firms in a Regulated Developing Country - Nigeria. African Journal of Economic and Management Studies, 5(3), 341-368. doi:http://dx.doi.org/10.1108/AJEMS-11-2012-0072