Listed Commercial Banks' Capital Structure Impact On Business Performance

Capital structure is defined as the relative amount of debt and equity used to finance a firm. Capital of commercial bank differs from that of non-financial company since capital of commercial bank can be financed with certain amount of debt. Basel II classifies capital of commercial bank into Tier 1 capital and subsidiary capital. Subsidiary capital must not exceed the size of tier 1 capital. Tier 1 capital structure of commercial bank is similar as the equity structure of non-financial company.Capital structure theory holds that commercial banks'capital structure affects its business performance via two channels. On one hand, capital structure directly affects finance cost and finance risk. On other hand, capital structure, especially equity structure, indirectly affect business performance through governance structure.This paper uses capital adequacy ratio, the proportion of subsidiary capital and equity ratio to study capital structure of commercial bank, make qualitative analysis on the specialty of banks'capital structure and its effect on business performance, use panel data of 14 listed commercial banks during 2006 and the first half year of 2009 to analyze the effect quantitively. Return on risk-weighted assets (RORWA) is used to indicate the profitability of banks while non-performing loan rate and non-performing loan forming rate are used to indicate banks'asset quality. At last, recommendations on optimization of commercial bank structure and improvement of business performance are given.