The Impact of Capital Structure on the Operational Efficiency of Commercial Banks Listed on the Australian Stock Exchange
DOI:
https://doi.org/10.53819/81018102t4177Abstract
This study examined the influence of capital structure on the operational efficiency of commercial banks listed on the Australian Stock Exchange (ASX). Using financial data from the period 2010 to 2022, the investigation employed robust econometric techniques such as panel data regression analysis to assess the interplay between capital structure variables (debt ratio, equity ratio, and hybrid capital) and measures of operational efficiency (cost-income ratio and Return on Assets). The findings revealed a significant negative relationship between the debt ratio and operational efficiency, suggesting that banks with higher levels of debt tended to demonstrate lower efficiency. Conversely, there was a positive relationship between equity ratio and operational efficiency, indicating that banks with greater proportions of equity were more efficient. The impact of hybrid capital on operational efficiency, however, was found to be non-linear, suggesting a complex interaction between these variables. The results also revealed the existence of significant time and bank-specific fixed effects, suggesting that factors unique to individual banks and changing economic conditions over the study period also influenced operational efficiency. The implications of these findings for financial regulation, bank management, and policy were discussed, highlighting the need for a balanced capital structure that maximizes operational efficiency while minimizing financial risk. This study contributes to the ongoing discourse in financial economics about the effects of capital structure on banking efficiency. It advances the understanding of how the right blend of debt, equity, and hybrid capital can enable commercial banks to optimize their operational efficiency and maintain financial stability, providing valuable insights for regulators, bank managers, and shareholders.
Keywords: Capital Structure, Operational Efficiency, Commercial Banks, Australian Stock Exchange, Financial Economics.
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