Analysis of the Capital Structure of Commercial Banks

The article presents a regression analysis of banking determinants and their impact on the capital structure of banks for the period 2011–2019 on an extensive statistical base of the countries of India, Russia, China, the USA and banks in the Eurozone. The study proceeds and is based on the empirical results of the analysis of the structure of bank capital, carried out for individual countries up to the specified period. These results turned out to be quite contradictory regarding the significance of different determinants of the structure of bank capital. Understanding the influence of the determinants on the stability of the banking system, the article attempts to explain the differences for the period 2011–2019, when the countries' banking systems adopted the Basel 3 capital adequacy requirements. It is shown that 1) the capital structure of banks is influenced not only by banking determinants, but also by development conditions, regulatory institutions, the state of the economy, which is evidence of the need to analyze the problems of forming the capital structure of banks by countries, types of banks, etc.; 2) banking determinants between 2011 and 2019 explain the variation in bank capital structure to a significant extent and regulatory action is relevant for all countries. From the point of view of the peculiarities of the formation of the structure of bank capital and the role of the regulator in this case, directions of modification of relevant theories of capital structure are proposed.

1. Modiljani F., Miller М. Kh. Stoimost kapitala, korporotivnye finansy i teoriya investizij. Amerikanskiy ekonomicheskiy obsor, 1958, June, pp. 261–297. (in Russ.)

2. Douglas W. Diamond, Raghuram G. Rajan. A Theory of Bank Capital. Journal of Finance, 2000, vol. 55, pp. 2431–2465.

3. Ruud A. De Mooij. International Taxation and Luxembourg's Economy. IMF, 2020, Working Paper no. 264.

4. Mishkin, Frederic S. The Economics of Money, Banking, and Financial Markets. Boston [etc.], Pearson Addison Wesley, 2004, 0-3211-2235-6.

5. Gropp Reint, Florian Heider. The Determinants of Bank Capital Structure. Review of Finance, 2010, vol. 14, iss. 4, pp. 587–622.

6. Michael C. Jensen. A theory of the firm: governance, residual claims and organizational forms. Journal of Financial Economics (JFE), 1976, vol. 3, no. 4, pp. 78–97.

7. Stewart C. Myers and Nicholas S. Majluf. Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 1984, vol. 13, iss. 2, pp. 187–221.

8. Bak er Malcolm P., Wurgler Jeffrey A. Market Timing and Capital Structure. Journal of Finance, 2002, vol. 57, no. 1, pp. 1–32.

9. Basri M. C. A Tale of Two Crises: Indonesia’s Political Economy. Economic Growth and Poverty Reduction, 2013, no. 03 (57), pp. 19–39.

10. Mark Flannery. Debt maturity and the deadweight cost of leverage: optimally financing banking firms. American Economic Review, 1994, vol. 84, iss. 1, pp. 320–331.

11. Monica Octavia, Rayna Brown. Determinants of bank capital structure in developing countries: regulatory capital requirement versus the standard determinants of capital structure. Journal of Emerging Markets, 2010, vol. 15 (1), pp. 50–62. ISSN 1083-9798, ZDB-ID 1496649-9.

12. Brewer Е. Iii, Kaufman G. G., Wall L. D. Bank capital ratios across countries: Why do they vary. Journal of Financial Services Research, 2008, no. 34 (2–3), pp. 177–201.

13. Adrian, Tobias, Hyun Song Shin. Money, Liquidity, and Monetary Policy. American Economic Review, 2009, no. 99 (2), pp. 600–605.

14. Frank Murray Z. & Goyal Vidhan K. Testing the pecking order theory of capital structure. Journal of Financial Economics, 2003, vol. 67 (2), pp. 217–248.

15. Hoa Nguyen Z. K. Determinants of banks’ capital structure in Asia: A comparison amongst developed and developing countries. J. Singapore Manag. Uni., 2013, no. 6, pp. 1–60.

16. Booth L., et al. Capital Structures in Developing Countries. The Journal of Finance, 2001, no. 56, pp. 87–130.

17. Beck, Thorsten. Bank Financing for SMEs around the World: Drivers, Obstacles, Business Models, and Lending Practices. Policy Research Working Papers, 2008, no. 11, pp. 2–30.