The Relationship of the Capital Structure and Financial Performance: Empirical Evidence of Listed Banks in Thailand (Published)
This paper aims to determine the relationship between capital structure and banks’ performance in Thailand. We utilize the quarterly data set containing firm-specific characteristics and profitability from 1997 to 2016. By employing the random effect model and robustness check to tackle the endogeneity problem, the result proves that capital structure is significant and negatively correlated with profitability which implies that pecking order theory is valid in data set used. Moreover, credit risk and liquidity risk significantly decrease the financial performance. Based on the result and the theoretical background, this paper would like to suggest that governments and banks should focus on controlling the credit process to reduce the non-performing loans. Moreover, they should pay attention to the fund allocation to avoid the shortage of funding which may be costly to banks. Also, while improving banks’ financial performance, banks’ managers should be aware of over utilizing debt which reduces banks’ profitability.