A Study On The Impact Of Capital Structure On Profitability Of Urban Commercial Banks In Western Region

As a representative of small and medium-sized banks,urban commercial banks provide financial services for regional economic development,continuously meet the financing needs of small and medium-sized enterprises and other real economies in various regions,and strongly promote the prosperous development of local economies.However,the external environment of China’s banking industry is experiencing a series of changes,with downward economic development,increased pressure of interbank competition,and innovative development of digital financial enterprises,which have caused multiple impacts on the profitability of commercial banks in China.Compared with developed regions,the location advantage of urban commercial banks in western regions is not obvious,so their profitability is more fragile.The capital structure of urban commercial banks determines the cost of using funds,which has a significant effect on promoting profitability.Therefore,the optimization of capital structure of urban commercial banks is an effective response to the changes in the external economic environment,which can better improve profitability on the basis of balancing liquidity and safety.This article aims to explore the impact of the capital structure of urban commercial banks in the western region on their profitability,and analyze how the capital structure of private capital participation can improve the profitability of urban commercial banks while reducing the contradiction between ownership and control,in order to avoid the accumulation of huge financial risks caused by major shareholder "hollowing out" in the operation process of urban commercial banks.Firstly,by organizing research literature and achievements on the impact of capital structure on profitability both domestically and internationally,the mechanism of the impact of capital structure on profitability is analyzed from the perspectives of equity capital and debt capital.Secondly,the current situation of the capital structure and profitability of 20 urban commercial banks in the western region is analyzed.Then,the impact of capital structure on profitability is tested through empirical analysis,combined with credit risk events of commercial banks,Conduct a case study from the perspective of "tunneling" by major shareholders to comprehensively explore the impact of capital structure on profitability of 20 urban commercial banks in western China.The following conclusions are drawn:(1)The concentration ratio of equity will inhibit the profitability of urban commercial banks.Based on the bankruptcy case of Baoshang Bank,it is explained that high concentration of equity will lead to the "hollowing out" behavior of major shareholders,undermine the balance effect of the bank’s internal supervision mechanism,and damage the profitability of urban commercial banks;(2)Private shareholders’ equity participation will improve the profitability of banks,and government shareholders should play a more supervisory role.From the perspective of equity concentration ratio and "tunneling" of major shareholders of Baoshang Bank,although private shareholders can promote the profitability of western city commercial banks,they should also prevent the "tunneling" behavior of private shareholders after equity concentration,which is the key point of risk prevention of western city commercial banks at present.(3)The short-term solvency promotes the improvement of profitability,and the asset liability ratio shows a negative correlation with profitability.Based on the results of empirical analysis,a case study is conducted on the takeover event of Baoshang Bank,with supplementary arguments from the aspects of risk identification,impact of equity structure on profitability,experience and inspiration in risk management.This paper argues that city commercial banks should further improve the internal supervision mechanism,reduce the concentration ratio of equity,enrich the main investors,and establish an effective capital structure of checks and balances.