What Impacts the Leverage Ration of the Banks in Albania?

Abstract

Choosing the right amount of the leverage ratio is not an easy task for a firm as well as for a bank. Various determinants impact this ratio according to the type of business and also the market that it operation. The main aim of this paper is to examine the main determinant of leverage ratio in the Albanian banking system. To determine the short run impact of the determinant, panel data multi regression model where the dependent variable is the leverage ratio. The internal independent variables are profitability, return on assets, size, tangibility, and tax and dividend payment. The external independent variables are Gross Domestic Product annual growth rate and Inflation Growth Rate. In order to examine the long run relationship between leverage ratio and the independent variable Kao Residual Co-integration Test was conducted. The main results indicate that the negative relationship if found between leverage ratio and the variable of profitability, tax payment and Inflation rate. While the relationship with other variable was positive. Moreover, leverage ratio has a long run relationship with tax payment, tangibility, GDP growth rate and Inflation rate, as well as with all the independent variable taken together.