Open AccessCapital structure and profitability: An empirical study of South African banks
Author(s) -
Kudzai Raymond Marandu,
Athenia Bongani Sibindi
Publication year - 2016
Publication title -
corporate ownership and control
Language(s) - English
Resource type - Journals
eISSN - 1810-0368
pISSN - 1727-9232
DOI - 10.22495/cocv14i1p1
Subject(s) - profitability index , risk adjusted return on capital , capital structure , capital adequacy ratio , recession , context (archaeology) , financial system , business , capital (architecture) , economic capital , monetary economics , emerging markets , credit risk , economics , financial capital , finance , capital formation , macroeconomics , geography , human capital , economic growth , market economy , debt , archaeology , incentive
The bank capital structure debacle in the aftermath of the 2007-2009 financial crises continues to preoccupy the minds of regulators and scholars alike. In this paper we investigate the relationship between capital structure and profitability within the context of an emerging market of South Africa. We conduct multiple linear regressions on time series data of big South African banks for the period 2002 to 2013. We establish a strong relationship between the ROA (profitability measure) and the bank specific determinants of capital structure, namely capital adequacy, size, deposits and credit risk. The relationship exhibits sensitivity to macro-economic shocks (such as recessions), in the case of credit risk and capital but is persistent for the other determinants of capital structure.