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Determining the Relationship Between Capital Adequacy Ratio and Financial Ratios with Panel Data Analysis: A Study on the Turkish Banking Sector

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  • Batuhan Medetoğlu

    (Mehmet Akif Ersoy Üniversitesi, Ağlasun Meslek Yüksekokulu, Finans, Bankacılık ve Sigortacılık Bölümü, Burdur, Türkiye)

Abstract

Banking is institutions that act as intermediaries and perform activities determined by law in order to meet the financial needs of units that supply and demand funds. In addition to accepting deposits and lending, transactions such as factoring, leasing, and intermediation in the capital market are also carried out by banks. Banks have an important place in the financial system in terms of asset size and volume. It is important for banks to be financially strong for a sustainable economic structure. For a sustainable structure, the capital adequacy ratio created by the Basel process, which took place after the 1974 oil crisis, is considered an important indicator for banks and it is stated that it is important that it is at least 8%. The capital adequacy ratio, which is also used to prevent risks from being encountered, is accepted as one of the basic indicators of the banks. This study was carried out to determine the relationship between the capital adequacy ratios of banks and their financial ratios. Within the scope of the study, the 10 banks with the highest asset size in 2021 were accepted as the sample. Capital adequacy ratios of banks are taken as a dependent variable, and a financial ratio of 7 is taken as an independent variable. The data obtained covers the years 2011-2021. Panel data analysis was used as a method to determine the relationship between capital adequacy ratio and financial ratios. As a result of the study, it was concluded that there is a statistically significant relationship between the capital adequacy ratio and all financial ratios. The direction and coefficients of the financial ratios that have a statistically significant relationship with the capital adequacy ratio were interpreted and evaluations were made. In the study, it is thought that the determination of the financial ratios that affect the capital adequacy ratio is important, and performing analyses using financial ratios and capital adequacy ratios in different periods is offered as a suggestion to valuable researchers, institutions, and industry stakeholders.

Suggested Citation

  • Batuhan Medetoğlu, 2023. "Determining the Relationship Between Capital Adequacy Ratio and Financial Ratios with Panel Data Analysis: A Study on the Turkish Banking Sector," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(39), pages 172-182, December.
    • Handle: RePEc:ist:ekoist:v:0:y:2023:i:39:p:172-182
    DOI: :10.26650/ekoist.2023.39.1244794
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    References listed on IDEAS

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    1. Baltagi, Badi H. & Feng, Qu & Kao, Chihwa, 2012. "A Lagrange Multiplier test for cross-sectional dependence in a fixed effects panel data model," Journal of Econometrics, Elsevier, vol. 170(1), pages 164-177.
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