Financial leverage and performance of Nepalese commercial banks

This study examines the determinants of return on assets, net profit margin, and earnings per share in Nepalese commercial banks to examine the performance proxy of commercial banks by using the secondary sources of data that are collected from the 20 Nepalese commercial banks through 2011/12 to 2016/17. The OLS regression models are estimated to test the significance and importance of leverage on the bank’s performance. The study reveals that debt to assets ratio, long term debt ratio, debt to equity ratio, interest coverage ratio, and liquidity ratio have a positive relationship with return on assets, net profit margin, and earning per share but the board size and Tobin’s q have a negative relationship with return on assets. Likewise, the debt to assets ratio, debt to equity ratio, interest coverage ratio, and board size have a positive relationship with net profit margin and earnings per share. However, long-term debt ratio, debt to equity ratio, bank size, and Tobin s q have a negative impact on net profit margin and earnings per share. The study also shows that the most influencing factor for determining return on assets is the interest coverage ratio followed by the debt to assets ratio, debt to equity ratio, and liquidity.