Co-determination of capital structure and stock returns in banking industry using structural equation modeling

Capital structure plays essential role on financial strength of business units and there are literally many studies to confirm the relationship between capital structure and return growth. In this paper, we re-examine this relationship by investigating on 12 Iranian private banks using structural equation modelling over the period 2005-2011. The proposed study of this paper designs a questionnaire and distributes it among experts and analyse it use LISREL software package. The result indicates that there is a positive and meaningful relationship, when the level of significance is five percent between capital structure and stock return in private banking industry in Iran. The implementation of Pearson and Spearman correlation tests also validate the findings.