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Determinants of banks' debt: dynamic panel evidence from Indian public sector banks

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  • Pramod Kumar Naik

Abstract

This study aims at examining the major determinants of debt financing of Indian public sector banks. To achieve the study objective, we form a balanced panel by extracting data of 26 public sector banks (PSBs) of India over 12 years from 2005 to 2016. The study employs the pooled OLS, and both the static and the dynamic panel data techniques, such as the random-effects model and system GMM model for the empirical analysis. The analysis reveals that the bank's debt financing is significantly determined by bank size, tangibility, liquidity, and financial strength. It shows that bank size, liquidity, and tangibility are positively related to banks' debt, whereas financial strength and economic growth are negatively related to the banks' debt level. It is also found that the debt level is consistent over time; however, the speed of adjustment is around 92% per annum. This implies that the PSBs adjust their actual debt level towards their optimal debt level at a faster rate.

Suggested Citation

  • Pramod Kumar Naik, 2020. "Determinants of banks' debt: dynamic panel evidence from Indian public sector banks," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 10(1), pages 24-39.
    • Handle: RePEc:ids:intjaf:v:10:y:2020:i:1:p:24-39
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