DOES THE BANKS CAPITAL STRUCTURE AFFECT BANK PERFORMANCE? NORDIC EVIDENCE

Abstract

Banking activities are considered to be important in the economy. The main purpose of banks is to ensure that the financial economy is stable. Banking activities are heavily regulated and supervised and especially capital structure is under surveillance. Regulators assume that capital structure of banks has an impact on banking activities.

This study examines, whether banks’ capital structure affect banks performance. There are many studies about capital structure and the results of the studies vary depending on the author. While researching banks capital structure, it is meaningful to discuss about regulations of banking. Regulations are usually based on known risks in banking activities.

Banks, as well as other corporations, performance is measured by different performance ratios. Most of the performance ratios are based on the corporations profits. Banks performance and amount of capital become important when banking activities are struggling. These sorts of situations occur when banks experience crisis.

This study examines how banks capital structure impact on banks performance in three different time periods. The impact of capital structure is examined before the financial crisis 2007-2008, during the financial crisis 2007-2008 and after the financial crisis. The results suggest that capital structure impacts on banks performance during all time periods of this study. Banks that are included in this study operate on Nordic area.