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The Causal Relationship Between Bank Capital And Profitability

Author

Listed:
  • DAVID E. HUTCHISON

    (Westwood Development Group and University of Ontario, Institute of Technology, Oshawa, Canada)

  • RAYMOND A. K. COX

    (Westwood Development Group and University of Ontario, Institute of Technology, Oshawa, Canada)

Abstract

The relationship between capital structure and return on equity (ROE) is examined. It is shown that for banks in the US, for the relatively less regulated 1983–1989 period as well as the more highly regulated 1996–2002 period, there is a positive relationship between financial leverage and the ROE. The analysis is extended to determine the relationship between return on assets (ROA) and equity capital. The evidence supports the hypothesis that there is a positive relationship between equity capital and ROA.

Suggested Citation

  • David E. Hutchison & Raymond A. K. Cox, 2007. "The Causal Relationship Between Bank Capital And Profitability," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(01), pages 1-11.
    • Handle: RePEc:wsi:afexxx:v:03:y:2007:i:01:n:s2010495207500029
    DOI: 10.1142/S2010495207500029
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    Citations

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    Cited by:

    1. Shahchera , Mahshid, 2013. "The Determinants of Banks' Capital Structure: The case of Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 8(1), pages 141-167, January.
    2. Tuba DERYA-BASKAN & İlkut Elif KANDİL-GÖKER, 2018. "The Effect of Cash Conversion Cycle on the Companies’ Capital Structure:An Investigation on BİST Listing Cement Sector Companies," Sosyoekonomi Journal, Sosyoekonomi Society, issue 26(38).
    3. Albaity, Mohamed & Mallek, Ray Saadaoui & Noman, Abu Hanifa Md., 2019. "Competition and bank stability in the MENA region: The moderating effect of Islamic versus conventional banks," Emerging Markets Review, Elsevier, vol. 38(C), pages 310-325.

    More about this item

    Keywords

    Banks; capital profitability; G21; G32;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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