Determinants of Banks’ Capital Structure: A Review of Theoretical and Selected Empirical Research

Abstract

The determinant of capital structure is very crucial in decision making as the determinants of capital structure in banking system are vary from non-financial firms since banks played different roles from others. Banks are required to hold more capital than the minimum capital requirement laid down by the regulators. This is because of banks tend to confront with several risks which might be affected the banking operation and severely have possibility to insolvent. Nevertheless, there is limited studies investigate the determinants of banks’ capital structure as this type of research were mostly conducted for non-financial firms. For banks, which considered as highly leverage, should have ability to determine the appropriate amount of capital to engross unpredicted losses arising from its daily transactions. Furthermore, the understanding on how bank choose their capital structure and the appropriate related theory still under-explored in the literature of banking. Therefore, due to some argument related to the theories, this paper is aiming to discuss on the capital structure from banking perspectives and explored the specific determinants which can be the ultimate factors to determine banks’ capital structure.