Determining factors affecting the financing decisions by Zimbabwe Banks
This study aimed to determine the factors affecting the financing decisions made by the banks listed on the Zimbabwe Shares Exchange. There are numerous studies on capital structure determinants of non-financial firms in the developed countries but there are not many studies on what determines the capital structure of financial institutions, such as banks, in developing nations. Therefore, this study aimed to fill the gap in the scholarship of the financial decisions of listed banks in a developing country- with particular emphasis to Zimbabwe. Five dependant variables (namely, profitability, growth, size, tangibility, and volatility of assets) were selected and regressed against leverage (debt to equity). Five banks listed on the Zimbabwe Shares Exchange (ZSE) were selected for the study and their performance was compared to the top five international banks’, as well as five defaulted banks’ in Zimbabwe performance. A combination of panel data analysis and descriptive statistics were employed to examine the relationship between the firm capital structure and the explanatory variables. Correlation analysis was also carried out, as well as financial statement analysis. The analysis found the regression model to be insignificant with the adjusted R squared of -0.038%. There were no explanatory variables that were significant, which is in contrast with other research done. The research also found a negative relationship with profitability, which is in agreement with findings from this research. The average (mean) for leverage of Zimbabwean banks was found to be 88% and this indicates that the banks are financed (leveraged) with debt at approximately eight times greater than equity option. That means the banks’ financing decision is inclining to deposit mobilization than to the equity financing. Through the empirical study, it was also noted that the Zimbabwean commercial banks listed on the ZSE follow the pecking order theory more than the agency and trade-off theories of capital structure. Key words: capital structure, financial management, trade-off theory, pecking order theory, agency theory.