Does Capital Structure Influence Profitability in Indian Commercial Banks? An Empirical Approach using Panel Data Analysis

Numerous studies across various industries and countries have explored what factors affect capital structure and profitability, as well as how capital structure, along with other factors, affects profitability. However, there is limited research specifically focused on how capital structure affects the profitability of commercial banks in India. This research seeks to comprehend the effect capital structure has on profitability using panel data analysis from a balanced panel of thirty-two listed banks recorded in the Bombay Stock Exchange (BSE) in India during the fiscal year 2016 to 2023. The findings are that the increase in total debt fund in the capital structure decreases profitability, and there is no significant relationship long-term debt has with profitability. The implication of this study’s negative capital structure-profitability relationship is that it supports the pecking order theory, even after considering the impact of Coronavirus disease 2019 (COVID-19) on bank profitability.