THE DETERMINANTS OF CAPITAL STRUCTURE: EVIDENCE FROM TUNISIAN BANKS

Abstract

This study explores the capital structure decisions of banks operating in Tunisia, a topic of growing relevance amid evolving financial regulations and economic shifts. In the banking sector, capital structure plays a pivotal role in ensuring institutional solvency, risk management, and strategic positioning within competitive financial markets. The primary goal of this article is to investigate the key internal and macroeconomic factors that influence leverage decisions in Tunisian banks. The research employs a panel data approach covering 11 commercial banks listed on the Tunisian financial market over the period from 2014 to 2023. To achieve robust and reliable results, the study utilizes a static panel model, tested under both fixed and random effects, with the Hausman test guiding the choice of estimation method. The dependent variable is leverage, defined as the ratio of total liabilities to total assets, while the independent variables include a set of bank-specific financial indicators—such as profitability, size, capital adequacy, credit exposure, and asset tangibility—as well as macroeconomic factors like inflation and GDP growth. The empirical findings demonstrate that several variables exert statistically significant effects on the capital structure of banks. In particular, return on assets, return on equity, capital adequacy, tangibility, total loans, inflation, and size appear to have strong associations with leverage, though not always in the expected direction. Notably, the size of banks shows a negative relationship with leverage, suggesting that larger institutions might rely less on debt financing, potentially due to greater access to equity markets or retained earnings. Tangibility and credit expansion positively influence leverage, reinforcing the idea that asset-backed lending and growth ambitions necessitate increased borrowing. These results contribute to a better understanding of financial decision-making in banking institutions within emerging economies. The practical significance of the article lies in its policy implications for regulators and bank managers aiming to enhance capital planning, risk oversight, and financial stability. By identifying the key determinants of leverage in Tunisian banks, the study offers a foundation for improving strategic capital allocation and aligning banking practices with regulatory expectations and market realities.