The Relationship between Capital Structure and Performance in Gulf Countries Banks: A Comparative Study between Islamic Banks and Conventional Banks

Meero, Abdelrhman

doi:10.5539/ijef.v7n12p140

Cited by 22 publications

(37 citation statements)

References 78 publications

(71 reference statements)

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“…The adjusted R-squared of 0.47 indicates that 47% in the variation of return on asset is explained by debt to equity ratio, asset tangibility and age. On a whole, the results does not conform with the a priori expectation and it is also supported by the work of [27,29,25,32,16,11,30,31,33,14,35]. It is therefore established that capital structure has a negative influence on Bank performance and brings no improvement to the wealth of shareholders.…”

Section: Panel Regression Resultsmentioning

confidence: 75%

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Effect of Capital Structure on Financial Performance of Listed Banks in Nigeria

Adeoye

Olojede

2019

AJEBA

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Corporate entities all over the world are faced with the problem of determining appropriate finance that will boost the value of the entity and maximize the wealth of shareholders. However, for overall wealth of shareholders to be met and consistent increase in value of Banks to be achievable, capital either debt in form of customers deposit or equity capital raised from investors is inevitable. This study therefore examined the effect of capital structure on the performance of some selected banks in Nigeria. The objectives were to examine the relationship that exists between capital structure and financial performance and to investigate the effect of capital structure on the financial performance of quoted deposit money banks in Nigeria. To achieve these, a cross sectional time series secondary data covering the period of seven years (2012-2018) was extracted from the audited financial statement of ten (10) banks listed on the floor of stock exchange. The descriptive statistics, Pearson moment correlation and multiple linear regressions were used. The correlation results showed that capital structure is negatively correlated with financial performance (ROA and ROE). Result from panel regression revealed that debt to equity though significant, impacted negatively on return on assets and return on equity ( = −0.1266, < .01; = −5.3571, > .01) , asset tangibility significantly impacted return on asset but 2 insignificantly impacted return on shareholder's equity ( = −0.0235, > .05; = −0.3527, > .10) and also Age have a significant impact on return on asset and insignificant effect on return on equity ( = −0.0141, < .01; = −0.1497, > .10). This study therefore concluded that capital structure have a negative effect on the financial performance of deposit money banks in Nigeria and recommended that appropriate proportion of capital should be tailored towards viable investment opportunities for maximum return of shareholders wealth and increase in value of the firm. More so, while finance manager is alert to the movement in the stock market, banks should take precautionary measures for mitigating credit risk associated with lending and borrowing.

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Section: Panel Regression Resultsmentioning

confidence: 75%

“…Meero [16] suggested that financial leverage have indirectly impact on ROA and direct link with equity to asset ratio. For the result used the 16 gulf countries data over the period of 2005 to 2014.…”

Section: Empirical Evidencesmentioning

confidence: 99%

Effect of Capital Structure on Financial Performance of Listed Banks in Nigeria

Adeoye

Olojede

2019

AJEBA

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“…Similar results were found by Yeh (2011) for the conventional banking industry in Taiwan. Meero (2015) examined the relationship between capital structure and performance in GCC banks. Contradicting with the theoretical and applied research on Islamic banking, he reported, abstractly, that capital structures of IBs and CBs are similar.…”

Section: Literature Reviewmentioning

confidence: 99%

Effects of the Global Financial Crisis on the Agency Cost of Islamic Banks and Conventional Banks

Aldeehani¹

2017

AFA

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In this paper, we investigate the effect of the 2008 global financial crisis on the agency cost (AC) of Islamic banks (IBs) and conventional banks (CBs). Many pioneering scholars (see, for example, Archer et al., 1998) have recognized fundamental differences in the capital structures and risks of IBs compared to CBs and called for more empirical testing of these issues. This effort is in response to those calls. Focusing on AC, we collected data for all Gulf Cooperation Council (GCC) banks satisfying the period from 2001-2014. The data was split into "before" and "after" the 2008 crisis. Although statistically insignificant, the analysis shows higher AC for IB compared to CBs before and after the crisis. However, we provide evidence of significant differences in AC causal models for the two types of banks. For conventional banks, only profitability factors explain variability in AC before and after the crisis. For Islamic banks, however, in addition to profitability, liquidity, deposits and financing facilities matter depending on the status of the economy. We provide further discussions, implications, and recommendations.

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“…There is no concept of target capital structure for a firm in the pecking order theory, which exists in the trade-off theory (Dang, 2013). Per reference to the pecking order theory, firms with higher profitability will prefer internal financing to debt and therefore a negative relationship is expected between profitability and capital leverage (Fama & French, 2002;Delcoure, 2007;Daskalakis & Psillaki, 2008;Chakraborty, 2010;Kayo & Kimura, 2011;Joeveer, 2013;Chakraborty, 2013;Dang, 2013;Meero, 2015).…”

Section: Pecking Ordermentioning

confidence: 99%

“…Literature review related to determinants of capital structure shows variety of variables that have been used to identify this relationship. Profitability, size and growth almost have been used as independent variables in the study of Chen (2004); Hijazi & Tariq (2006) Huang & Shen (2015); Meero (2015); Naim Nasimi (2016).…”

Section: The Factors Affecting the Capital Structurementioning

confidence: 99%

Determinants of Capital Structure in Bahrain Stock Market

Meero¹

2016

IFB

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The aim of this paper is to examine the determinants of capital structure (profitability, size, risk and growth). The sample is composed of 39 Bahraini firms listed in Bahrain Stock Market. The study covered the period 2011-2015. Correlation and regression analysis have been used to identify the relationship between the capital structure determinants and debt leverages (book leverage and market leverage). Correlation analysis aims to identify this relationship at market level and at sectorial level. Regression analysis objective is to anticipate the models characterizing the relationships between determinants and capital leverages. Results of the analysis shows negative significant relationship between profitability and dependent variables, with more significance relationship with market leverage. This relationship is demonstrated in market level and in insurance and services sectors between profitability and book leverage. When the market leverage is the dependent variable this relationship is valid in market level and in banking, hotels, insurance and services sectors. Positive significant relationship has been found between size and both leverages in market level. Similar result is detected on sectorial level in banking, industrial, investment and services when the dependent variable is book leverage. Size-market leverage relationship is positive and significant also in insurance, investment and services sectors. The relationship risk—book leverage is significant only on sectorial level in Industrial, insurance and investment sectors. In term of market leverage—risk relationship, significant relationship is detected in market level and in investment and services sectors. Regression analysis results present a significant linear model reflecting the relationship between determinants of capital structure and leverages.

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The Relationship between Capital Structure and Performance in Gulf Countries Banks: A Comparative Study between Islamic Banks and Conventional Banks

Cited by 22 publications

References 78 publications

Effect of Capital Structure on Financial Performance of Listed Banks in Nigeria

Effect of Capital Structure on Financial Performance of Listed Banks in Nigeria

Effects of the Global Financial Crisis on the Agency Cost of Islamic Banks and Conventional Banks

Determinants of Capital Structure in Bahrain Stock Market

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