Hamid Mohsin Jadah

The current paper aims to investigate the effect of the capital structure on the profitability of a panel of eighteen Iraqi listed banks from 2009 to 2018. Furthermore, the unbalanced panel data approach (fixed effect and random effect) is utilized to explore the influence of capital structure on banks’ profitability. This study’s findings point out that the banks’ performance in terms of return on assets has a significant positive association with equity to assets ratio, liabilities to assets ratio, and bank size. On the other hand, long-term debt to assets ratio, short-term debt to assets ratio, and total debt to assets ratio showed a significant negative effect on banks’ performance. This study highlights new facts for an enhanced understanding of the capital structure and its association with banks’ performance in developing economies like Iraq. This study is considered one of the earliest studies of its types by determining the Iraqi banks’ optimal structure and examining capital structure’s impact on their performance. Nevertheless, the study contributes significantly to theoretical literature, policymakers, and industry so that conventional Iraqi banks can boost their performance.

The determinants of bank profitability are very important, as bank profitability significantly affects the economies of countries. This study aims to examine the internal determinants (bank-specific characteristics) and external determinants (macroeconomic factors and government variables) of bank profitability in Iraq. The study uses unbalanced panel data from 18 banks in Iraq for thirteen years, from 2005 to 2017. The relationship is estimated using a fixed effects approach. The study selected 18 conventional banks considering their data availability in the period from 2005 to 2017. Based on the panel data method, the results show that bank size, the equity to total assets and total loans to total assets ratios, GDP growth, and government effectiveness have a significant and positive impact on the profitability of Iraqi banks. Meanwhile, credit risk, inflation, interest rate, unemployment, and political instability have a significant negative influence on bank profitability. To the authors’ knowledge, this study is considered one of the earliest studies of its kind, in which the main factors affecting Iraqi bank profitability are determined. That said, this paper makes a significant contribution to the theoretical literature, the industry, and policymakers, so that the performance of Iraqi conventional banks can be improved.

Acknowledgments
The authors acknowledge the support from Ministry of Higher Education in Iraq, University of Kerbala, AL-Furat AL-Awsat Technical University, and Imam AL-Kadhum College for Islamic Studies. Furthermore, we appreciate the support by Prof. Dr. Sivarajasingham Selliah, Assistant Prof. Dr. Muhammad Abrar Ul Haq, and Dr. Mohammed Hasan.