Assessing the effects of capital structure on performance of financial services firms listed on the ZSE(2015 – 2019)

Abstract

The fundamental aim of this study was to establish the impact of capital structure on performances of financial institutions listed on the Zimbabwe Stock Exchange as from June 2015 to December 2020. Long-term leverage to assets (current plus non-current)) ratio and short-term leverage to assets (current plus non-current) ratio were a measure for capital structure, while Return on Equity (ROE) was used as a proxy for bank performance. Firm size was used as a control variable for this study. The study used semi-annual panel data from five banks‟ annual reports for a period of five years from June 2015 to December 2019 for five banks listed on the Zimbabwe Stock Exchange. Four execution conditions were assessed utilizing the pooled-Ordinary Least Squares assessment procedure. The Pearson's correlation test and Variable Inflation factor approaches were utilized to test for multi-collinearity while the confined F-test or fractional F-test was utilized to decide the model of best fit, between the unlimited and the limited models. Econometric evaluations uncovered that Short-term leverage (SLA) had a statistically insignificantly but negative relationship with return on equity (ROE), while long term leverage (LLA) impacts ROE. Overall, total leverage ratio (TLA) as measured by short term leverage ratio plus long-term leverage ratio was found to be statistically insignificant but negatively associated to bank profitability proxied by return on equity (ROE).