The effects of capital structure decisions on the financial performance of banks: An application on the banking sector of Afghanistan

The capital structure of businesses is formed based on the capital sources utilized by those businesses. A business can obtain capital by using equity, debt, or a combination of both to raise funds. The capital structure of a business is determined by the combination of equity and debt used. Financial decisions are significantly linked to the performance of a business. In this study, the impact of the capital structure of banks in the Afghanistan banking sector between 2015-2020 on their financial performance was examined. In the study, performance indicators commonly used to assess banks, such as return on assets (ROA), return on equity (ROE), and net interest margin (NIM), were considered as dependent variables; whereas debt ratio and debt/equity ratio, which reflect the capital structure, were treated as independent variables. Data analysis was conducted using SPSS software, including normality test, descriptive statistical analysis, and regression analysis. The results obtained based on the data from the Afghanistan banking sector between 2015-2020 show that the impact of capital structure on the financial performance of banks varies. It indicates a significant effect of capital structure on return on assets (ROA) and net interest margin (NIM) and no significant impact on return on equity (ROE).