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The effects of capital structure on accrual- and cash-flow-based performance of US banks
(Lethbridge, Alta. : University of Lethbridge, Dhillon School of Business, 2019) Hoque, Moksidul; University of Lethbridge. Dhillon School of Business.; Asem, Ebenezer; Alam, Shamsul
This study investigates the inverted-U effects of capital structure on accrual- and cash-flow-based performance of US banks from 1980 to 2017. Capital structure is measured by the debt to assets ratio, accrual-based performance is measured by return on assets, and cash-flow-based performance by cash-flow on assets. We use panel data analysis - pooled ordinary least square, fixed effects, and random-effects models. Collectively, our results support the inverted-U effects of capital structure on accrual- and cash-flow-based performance. Cash-flow-based performance is higher than accrual-based performance at all levels of debt. Cash-flow-based performance recommends a higher level of debt in the optimum capital structure. We also find that the following bank characteristics are significant in explaining the relationship between capital structure and bank performance: size, asset turnover, net loans to deposits, and loan loss reserves to assets.