Dissertation Supervisor
Title
Effects of Capital Structure (CS) on the profitability on top five Banks in Canada
Introduction
Capital structure generally refers to the balance sheet composition of the capital of a Bank; the proportion of debt and equity to total capital (compared to the asset structure). It is the way a Bank finances its assets through a combination of equity, debt or hybrid securities. In reality, capital structure may be very complex and includes dozens of sources (Ross 2003, 23-40).
The rationale of this study is to investigate empirically whether the top five banks in Canada, in the amount of debt affect the profitability of the banks, that is, if could be related to capital structure as one of the solutions to think about the profitability as an explanatory factor. In addition, the study will also look at the capital structure practices that the top five banks follow.
Research Questions
What changes have occurred in the Capital Structure and profitability of the top 5 Banks overtime?
What is the correlation between profitability and their Capital Structure?
What is the correlation between profitability and capital structure?
What is the optimum level of capital structure in top five Banks in Canada?
What are the bases of the capital structure of Top five banks in Canada?
In addition to the research questions listed above, the dissertation as a part of literature review, would also present the overview of the Canadian market performance over the period 10 years such as;
Abnormal returns
Market capitalization
Returns on Shares apart from accounting returns and others.
It will also shed light on the major laws and regulations governing the Canadian financial market specifically relating to equity holding and borrowings. While presenting a comprehensive overview of each of the top five banks, the dissertation will also focus on the structure of the banks itself i.e. the strength of, number of branches etc.
Relation to Previous Research (Theoretical Framework)
There has been extensive work on the proposed research and previous researches in the same area; relation between capital structure and profitability. There have been conducted various studies in the past that takes into account significant information about the capital structure of the corporations. The past studies show that the capital structure is considered to be one of the most important decisions in the corporation's (Siegfried 2001, 245-259). The financial analysts and economist have thoroughly discussed the structure of corporate capital in order to analyze different aspects of it.
The research study is focused on the capital structure and factors relating to it. According to the studies by Masulis & Huang, (1999), if the study interprets the result that a > b, the corporation will be moving towards the industry average and its value would increase as it increases the debt in its capital structure. However, if b > a, the corporation will be moving away from the industry average and its value would increase only if it reduces its debt. The analysis was based on the capital structure and its relationship with the industry average (Stiglitz ...