THE IMPACT OF CAPITAL STRUCTURE ON BANK PERFORMANCE: GMM ESTIMATION FOR THE CASE OF VIETNAM

Year 2021, , 73 - 83, 30.07.2021

Thu Thuy Nguyen Trung Dung Nguyen Thuy Tien Dinh Khanh Linh Vu

https://doi.org/10.17261/Pressacademia.2021.1426

Abstract

Purpose- Bank managers have recently focused more on capital structure with the aim of achieving optimal financial cost allocation in bank operations in order to enhance their performance.
Methodology- Employing the database of 28 Vietnamese commercial banks during the period 2010-2019, this paper investigates the impact of capital structure on bank performance.
Findings- By applying Pooled OLS, FEM and REM regression models, combined with SYS-GMM technique to fix some diagnose problems as well as endogeneity phenomena, the empirical findings reveal that capital structure (measured by total debt to assets and debt to equity ratios) negatively and significantly influences the performance of selected commercial banks (measured by ROA and ROE). Meanwhile, most of control variables (bank size, non-performing loan, liquidity, and GDP growth rate) represent significant and positive relationships with bank performance, except for the negative impact of operating cost rate.
Conclusion- Regarding these outcomes, some implications are suggested to policy makers and bank managers to improve bank performance, subsequently to enhance the stability of the Vietnamese banking system – especially under the current uncertain economic conditions.

Keywords

Capital structure, bank performance, Vietnamese commercial banks, bank stability, GMM

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