DETERMINANTS OF BANK CAPITAL STRUCTURE – DOES BANK OWNERSHIP MATTER? EVIDENCE FROM TANZANIA

Abstract

This study examined the determinants of capital structure of commercial banks operating in Tanzania using panel financial data of 14 banks drawn from 1998 to 2010 on a quarterly basis. A multiple-indicators-multiple-causes structural equation modelling was applied, with a consideration for structural break. In order of importance, bank size, profitability, non-tax depreciation shield, growth and volatility have been determined to be key determinants in capital structure decisions of commercial banks in Tanzania. Controlling for the ownership, growth of the banking firms is not significant in determining the capital structure among foreign banks. The study contributes to the understanding of commercial banks’ capital structure in relation to the ownership structure in emerging markets and provides a policy direction for foreign bank entry into developing countries.