Dori RISILIA, Gerta GOGO & Melita ZHERRI
The capital structure is referred to a company’s outstanding debt and equity. It allows a firm to understand what kind of funding the company uses to finance its overall activities and growth. In other words, it shows the proportions of senior debt, subordinated debt and equity (common or preferred) in the funding. The purpose of capital structure is to provide an overview of the level of the company’s risk. As a rule of thumb, the higher the proportion of debt financing a company has, the higher its exposure to risk will be. Bank’s capital structure has been one of the main concerns for bank regulators such as: Bank for International Settlements and Bank of Albania. They have proposed and implemented regulatory frameworks to improve capital structure to minimize different types of risks. However, bank’s capital is proved to be one of the main determinants on the banks performance. From the literature review and other similar studies in developing countries we expect to find an inverse relationship of capital structure and performance. In this study the capital structure is an independent variable to explain its impact on performance using reports such as: Return on Assets, Return on Equity and Earning per Share. We are going to use an empirical study to examine the data of 15 banks on the period of 2014-2017. The findings of this study are important for countries like Albania and bank’s management and policymakers in order not to rely too much on debt and help them seek for the optimal capital structure. In other words, to reach the main goal that is the highest efficiency and profitability.