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How capital structure and bank liquidity affect bank performance: Evidence from the Bayesian approach

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  • Tran Thi Kim Oanh
  • Diep Van Nguyen
  • Hoi Vu Le
  • Khoa Dang Duong

Abstract

This article analyzes the impact of capital structure and bank liquidity on the performance of commercial banks in Vietnam, a transition market in Asia. This research is unique because it is the first study to employ the Bayesian Estimation methods in banking studies. The data includes 463 annual bank-year observations from 37 commercial banks in Vietnam from 2003 to 2020. The Bayesian linear regressions indicate that a higher leverage ratio reduces ROA and ROE while positively empowering EPS. Our findings also document the positive impacts of bank funding liquidity on the performance of commercial banks in Vietnam. Our results are also robust even when employing the Generalized Least Squares estimations. While our results are consistent with the Pecking Order Theory and and prior literature, they do not align with the trade-off theory. Finally, our study contributes implications for policymakers and bank managers to develop the banking system sustainably.

Suggested Citation

  • Tran Thi Kim Oanh & Diep Van Nguyen & Hoi Vu Le & Khoa Dang Duong, 2023. "How capital structure and bank liquidity affect bank performance: Evidence from the Bayesian approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(2), pages 2260243-226, October.
    • Handle: RePEc:taf:oaefxx:v:11:y:2023:i:2:p:2260243
    DOI: 10.1080/23322039.2023.2260243
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