Effect of Financial Crisis on Capital Structure of Nepalese listed Companies

Abstract

This study examines the effect of financial crisis on the capital structure of Nepalese listed companies. Total debt to total assets ratio and total debt to total equity ratio are the selected dependent variables. Similarly, the selected independent variables are liquidity ratio, return on assets, profitability, assets tangibility, firm size, and assets growth. This study is based on secondary data of 14 Nepalese listed companies over a period 2015/16 to 2022/23, leading to a total of 112 observations. The secondary data was gathered from the annual reports of the chosen companies. The correlation coefficients and regression models are estimated to test the significance and effect of financial crisis on the capital structure on Nepalese listed companies. The study showed that liquidity ratio has a positive effect on total debt to total assets ratio and total debt to total equity ratio. This means that increase in liquidity ratio leads to increase in total debt to assets ratio total debt to total equity ratio. Similarly, return on assets has a positive effect on total debt to total assets ratio total debt to total equity ratio. It indicates that increase in return on assets leads to increase in total debt to assets ratio total debt to total equity ratio. In addition, profitability has a positive effect on total debt to total assets ratio total debt to total equity ratio. It indicated that higher the profitability, higher would be the total debt to total assets ratio total debt to total equity ratio. However, assets tangibility has a negative effect on total debt to total assets ratio total debt to total equity ratio. It means increase in assets tangibility leads to decrease in total debt to total assets ratio total debt to total equity ratio. Furthermore, firm size has a negative effect on total debt to total assets ratio total debt to total equity ratio. This indicates that increase in firm size leads to decrease in total debt to total assets ratio total debt to total equity ratio. Moreover, growth rate has a negative effect on total debt to total assets ratio. It indicates that increase in growth rate leads to decrease in total debt to total assets ratio total debt to total equity ratio of the companies.