Does Asymmetry of Information Drive Banks’ Capital Structure? Empirical Evidence from Jordan

Abstract

In search of the applicability of the capital structure theory (Pecking Order Theory) this study seek to penetrate into the most important factors on a bank's capital structure using panel data derived from 14 Jordanian banks quoted on the Amman Stock Exchange of 2013 over the time span of 15 years (1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011)(2012)(2013). The feasible generalised least squareis used in this study as the analysis model and Size serves to be a moderator variable. The results have demonstrated that out of three variables, tow (dividends and tangibility) are significantly linked with leverage, whereas the remaining is insignificantly associated with leverage. It is indicated that dividends and tangibility appear to function as the determinants of capital structure. The dividend has a negative effect on capital structure. It implies that although banks favor to payout dividends to shareholders, less debt capital is used. Tangibility affects capital structure positively. The greater tangibility necessitates the use of more debt in capital structure to fund all the activities. Bank size does not moderate the effects of growth, dividends and tangibility on the capital structure. It also appears that this study shows evidence in Jordan banks relatively and somewhat complies with the pecking order theory. The findings are of useful for both investors and managers.

Impact of Financial Sector Opacity on the Capital Structure Choice of Asian Banks

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How bank capital structure decision-making change in recessions: Covid-19 evidence from Pakistan

“…Miles (1995) has been seminal in this regard, attributing the depositor's inability to access banks (information asymmetry) as a factor that incentivizes risk-taking and low capital ratios in banks. Alkhazaleh and Almsafir (2015) find evidence in support of the argument. Gertler and Kiyotaki (2010), however, propose that higher asymmetry of information between the depositor and the bank leads to lower deposits.…”

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