What? Why?

Capitalization of firms has been researched

Effect of capital structure (the combination
of debt and equity) on the banking
performance in Pakistan.
worldwide and has proven to impact the
profitability of corporate firms. Can the same
model apply to banking performance or is
there a different optimal capital structure for
banks because of the nature of industry.

How - conceptually? How – practically?

Financial data for banks is easy to obtain.

Is bank’s performance really dependent on its
Financial statements will be used to compare
capital structure or are there any other
different capital structure and different
factors? If yes, then what factors?
profitability levels of various banks.

Brain Storming Research Topic

1. The WHAT-WHY-HOW FRAMWEORK?

2. Narrowing Down Research Area, Field and Issues

Area or academic discipline

Finance

Field
Financial statements of banks available publicly

Brainstorm issues, questions, puzzles

How many banks to include?
What banks to choose from?
How to determine time period of research?
What performance measures to use? Profitability, return on equity, assets, or growth?
3. Formulate Research Questions

Research Question 1:
• Symptom: Long term debt to capital ratio
• Potential Issues: What is the impact of long term debt to capital ratio on profitability
• RQ’s: Does long term debt to capital impact ratio bank profitability?

Research Question 2:
• Symptom: Short term debt to capital ratio
• Potential Issues: What is the impact of short term debt to capital ratio on profitability?
• RQ’s: Does short term debt to capital ratio impact bank profitability?

Research Question 3:
• Symptom: Total debt to capital ratio
• Potential Issues: What is the impact of total debt to capital ratio on profitability?
• RQ’s: Does total debt to capital ratio impact bank profitability?

Research Question 4:
• Symptom: Components of capital structure
• Potential Issues: What components of capital structure impact profitability?
• RQ’s: Do components of capital structure impact ROE of bank?

Research Question 5:
• Symptom: Components of capital structure
• Potential Issues: What components of capital structure impact profitability?
• RQ’s: Do components of capital structure impact ROA of bank?
Research Question 6:
• Symptom: Components of capital structure
• Potential Issues: What components of capital structure impact profitability?
• RQ’s: Do components of capital structure impact EPS of bank?

4. Convert Research Questions into Research Objectives

Hierarchal Trees

Components of
capital structure

Long term debt Short term debt Total debt to

to capital ratio to capital ratio capital ratio
 Banking
performance
measures

Earnings per
Return on equity Return on assets
share
Research Questions
Does capital structure impact on the banking performance in Pakistan?
Does capital structure impact the bank’s return on equity in Pakistan?
Does capital structure impact the bank’s return on assets in Pakistan?
Does capital structure impact the bank’s earnings per share in Pakistan?

Research Objectives

To identify the profitability measures that banks use in Pakistan

To investigate the practices of the banking industry towards capital structure in Pakistan
To assess which areas of performance can be impacted by the bank’s capital structure in Pakistan

Hypothesis
H1 = Capital structure has no significant impact on banking performance.
H2 = Capital structure has significant impact on banking performance.