The impact of the capital structure on Iraqi banks’ performance
-
DOIhttp://dx.doi.org/10.21511/imfi.17(3).2020.10
-
Article InfoVolume 17 2020, Issue #3, pp. 122-132
- Cited by
- 1116 Views
-
350 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
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.
- Keywords
-
JEL Classification (Paper profile tab)C33, G32, L25
-
References34
-
Tables5
-
Figures0
-
- Table 1. The study variables summary
- Table 2. Descriptive statistics
- Table 3. Pearson correlation matrix
- Table 4. The influence of the capital structure on banks’ performance measured by ROA
- Table 5. The impact of the capital structure on banks’ performance measured by ROE
-
- Abor, J. (2005). The Effect of Capital Structure on Profitability: An Empirical Analysis of Listed Firms in Ghana. The Journal of Risk Finance, 6(5), 438-445.
- Abu-Rub, N. (2012). Capital Structure and Firm Performance: Evidence from Palestine Stock Exchange. Journal of Money, Investment and Banking, 23(1), 109-117.
- Al-Farisi, A. S., & Hendrawan, R. (2011). Effect of Capital Structure on Banks Performance: A Profit Efficiency Approach Islamic and Conventional Banks Case in Indonesia.
- Alhamdan, N. & Alqadah, A. (2013). The Effect of Capital Structure on the Performance of Jordanian Banks listed on Amman Stock-Exchange: An Analytical Study. Al-Manar Journal, 19(4), 160-186.
- Al-Kayed, L., Zain, S., & Duasa, J. (2014). The relationship between capital structure and performance of Islamic banks. Journal of Islamic Accounting and Business Research, 5(2), 158-181.
- Al-Zubaidi, H., & Salamah, H. (2014). Test the Effect of Some Factors Determining Capital Structure: An Analytical Study of Companies Listed in the Saudi Financial Market, King Abdul Aziz University Journal, 28(1), 27-70.
- Arbabiyan, A. A., & Safari, M. (2009). The Effects of Capital Structure and Profitability in the Listed Firms in Tehran Stock Exchange. Journal of Management Perspective, 33(12), 159-175.
- Badar, R., & Saeed, R. B. A. (2013). Impact of Capital Structure on Performance Empirical Evidence from Sugar Sector of Pakistan. European Journal of Business and Management, 5(5), 78-86.
- Bashir, A. H. M. (2003). Determinants of profitability in Islamic banks: Some evidence from the Middle East. Islamic Economic Studies, 11(1), 31-57.
- Booth, L., Aivazian, V., Demirgruc-Kunt, A., & Maksimovic, V. (2001). Capital Structures in Developing Countries. The Journal of Finance, 56(1), 87-130.
- Bortolotti, B., D’souza, J., Fantini, M., & Megginson, W. L. (2002). Privatization and the Sources of Performance Improvement in the Global Telecommunications Industry. Telecommunication Policy, 26(5-6), 243-268.
- Clash, A. (2019). The Impact of the Capital Structure on the Performance of Islamic and Conventional Banks in Turkey: A Comparative Study. Journal of Islamic Economics and Finance, 5(1), 115-132.
- Jadah, H. M., & Mohammed, N. H. (2016). Financial Performance Evaluation of Domestic Commercial Banks: An Empirical Study in Malaysia. Asian Journal of Multidisciplinary Studies, 4(8), 120-127.
- Jadah, H. M., Alghanimi, M. H., Al-Dahaan, N. S., & Al-Husainy, N. H. (2020). Internal and External Determinants of Iraqi Banks Profitability. Banks and Bank Systems, 15(2), 79-93.
- Jadah, H. M., Murugiah, L., & Adzis, A. B. A. (2016). The Effect of Board Characteristics on Iraqi Banks Performance. International Journal of Academic Research in Accounting, Finance and Management, 6(4), 205-214.
- Khashrama, H., & Qaqish, M. (2000). Factors Affecting Profitability in Jordanian Insurance Companies: An Empirical Study. Al-Manara Journal, 5(1), 239-257.
- Kyereboah-Coleman, A. (2007). The Impact of Capital Structure on the Performance of Microfinance Institutions. The Journal of Risk Finance, 8(1), 56-71.
- Memon, F., Bhutto, N. A., & Abbas, G. (2012). Capital structure and Firm Performance: A Case of Textile Sector of Pakistan. Asian Journal of Business and Management Sciences, 1(9), 9-15.
- Mikhan, P., & Jain, K. (2007). Financial Management, Text, Problems and Cases (5th ed.). Tata. Mc Graw-Hill Publishing Company Limited.
- Modigliani, F., & Miller, M. H. (1963). Corporate Income Taxes and the Cost of Capital: a Correction. The American Economic Review, 35(3), 433-443.
- Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporate Finance and the Theory of Investment. The American Economic Review, 48(3), 261-297.
- Muritala, T. A. (2012). An Empirical Analysis of Capital Structure on Firms’ Performance in Nigeria. International Journal of Advances in Management and Economics, 1(5), 116-124.
- Myers S. C., & Majluf, N. (1984). Corporate Financing and Investment Decisions when Firms have Information Investors Do not have. Journal of Financial Economics, 13, 187-221.
- Niu, X. (2008). Theoretical and Practical Review of Capital Structure and its Determinants. International Journal of Business and Management, 3(3), 133-139.
- Pastory, D., Marobhe, M., & Kaaya, I. (2013). The Relationship between Capital Structure and Commercial Bank Performance: A Panel Data Analysis. International Journal of Financial Economics, 1(1), 33-41.
- Prabowo, F. P. S. R., Sarita, B., Syaifuddin, D. T., Saleh, S., Hamid, W., & Budi, N. (2018). Effect of Equity to Assets Ratio (EAR), Size, and Loan to Assets Ratio (LAR) On Bank Performance. IOSR Journal of Economics and Finance, 9(4), 1-6.
- Ramadan, Z. S., & Ramadan, I. Z. (2015). Capital Structure and Firm’s Performance of Jordanian Manufacturing Sector. International Journal of Economics and Finance, 7(6), 279-284.
- Saeed, M. M., Gull, A. A., & Rasheed, M. Y. (2013). Impact of Capital Structure on Banking Performance (A Case Study of Pakistan). Interdisciplinary Journal of Contemporary Research in Business, 4(10), 393-403.
- Salim, M., & Yadav, R. (2012). Capital Structure and Firm Performance: Evidence from Malaysian Listed Companies. Procedia-Social and Behavioral Sciences, 65, 156-166.
- Salteh, H. M., Ghanavati, E., Khanqah, V. T., & Khosroshahi, M. A. (2012). Capital Structure and Firm Performance; Evidence from Tehran Stock Exchange. International Proceedings of Economics Development & Research, 43(1), 225-230.
- Shamki, D., Alulis, I. K., & Sayari, K. (2016). Financial Information Influencing Commercial Banks Profitability. International Journal of Economics and Finance, 8(6), 166-174.
- Taani, K. (2013). Capital Structure Effects on Banking Performance: A Case Study of Jordan. International Journal of Economics, Finance and Management Sciences, 1(5), 227-233.
- Umar, M., Tanveer, Z., Aslam, S., & Sajid, M. (2012). Impact of Capital Structure on Firms’ Financial Performance: Evidence from Pakistan. Research Journal of Finance and Accounting, 3(9), 1-12.
- Zeitun, R., & Tian, G. G. (2007). Capital Structure and Corporate Performance: Evidence from Jordan. Australasian Accounting Business and Finance Journal, 1(4), 40-61.