Parametric, Non-Parametric and Multivariate Analysis of Capital Structure During the Financial Crises in Jordanian Banks
DOI:
https://doi.org/10.6000/1929-7092.2019.08.34Keywords:
Banks Leverage, Financial Crises, Jordanian Banks, Islamic Versus Commercial banks, Parametric Analysis, Non – Parametric Analysis.Abstract
Motivations: This research seeks to analyze the determinants of capital structure of the banking sector in Jordan taking into consideration bank business model (Islamic versus Commercial bank). The research also sheds light on the financial crises of 2007/2008 and its impact on the financing decision in the banking sector.
Novelty: Although the topic of capital structure's determinants is well studied in non-financial firms, very few studies considered the financial firms, namely banks. Since the nature of operations and capital components for banks are totally different this research comes to fill the gap in the banking literature.
Methodology and Methods: The study uses multivariate regression techniques of panel data besides the parametric and non-parametric analysis. Three measurements of capital structure are considered: leverage ratio, long term debt ratio and short-term debt ratio, the explanatory variables are included in two sets, bank specific characteristics and economic characteristics.
Data and Empirical Analysis: Balanced panel data set was formed for 27 Jordanian banks during the period of 2003-2015. Empirically, the findings suggest a variation of capital structure determinants based on the variable of measurement. However, the analysis confirms that bank's profitability and bank's risk are major components of the capital structure decision regardless of its measurement variable. In addition to these two variables, liquidity, growth and taxes are important variable in the short-term debt financing, and retained earnings is important to the long-term financing. Empirically proven that Jordanian banks' capital structure decision is affected by the global financial crisis 2007/2008 and by bank type. Jordanian banks might differ in size, but this doesn't affect their policies toward the capital structure. The empirical results are consistent with the pecking order theory that profitable firms prefer to use more of their internal sources of funds rather than debt financing.
Policy Implications: Due to the importance of the capital structure decision for banks and non-banks firms and based on our finding, the policy makers in Jordan and may in other similar countries should pay attention to capital requirement regulations as the determinants of leverage among banks are different based on the business model whether commercial or Islamic.
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https://doi.org/10.1016/j.mulfin.2004.03.001
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https://doi.org/10.1108/15265940810895016
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https://doi.org/10.1108/JERER-04-2014-0017
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https://doi.org/10.1111/0022-1082.00277
Hall, G., Hutchinson, P., & Michaelas, N. (2004). Determinants of the capital structures of European SMEs Journal of Business Finance & Accounting, 31, 711-728.
https://doi.org/10.1111/j.0306-686X.2004.00554.x
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https://doi.org/10.5089/9781455205318.001
Husam?Aldin N. Al?Malkawi, Rekha Pillai, (2013) ""The impact of financial crisis on UAE real estate and construction sector: analysis and implications"", Humanomics, Vol. 29 Issue: 2, pp.115-135.
https://doi.org/10.1108/08288661311319184
I.V. Larionova, E.I. Meshkova and S.V. Zubkova, 2018, The Capital Requirements (Basel III) and the Banking Sector Business Activity, Journal Review of Global Economics, vol. 7, pp. 527 – 537.
https://doi.org/10.6000/1929-7092.2018.07.49
Idries M. Al-Jarrah, 2010, Competition in the Jordanian’s Banking Sector, Dirasat, Administrative Sciences, Volume 37, No. 2.
Imad Z. Ramadan, Qais A. Kilani, Thair A. Kaddumi, 2011, Determinants of Bank Profitability: Evidence from Jordan, International Journal of Academic Research, Vol. 3. No. 4.
Jensen, M. (1986), “Agency costs of free cash flow, corporate finance, and takeovers”, American Economic Review, Vol. 76 No. 2, pp. 323-339.
https://doi.org/10.1016/0304-405X(76)90026-X
Jensen, M. and Meckling, M. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360.
Jian Chen Chunxia Jiang Yujia Lin, (2014),""What determine firms’ capital structure in China?"", Managerial Finance, Vol. 40 Iss 10 pp. 1024 – 1039
https://doi.org/10.1108/MF-06-2013-0163
Jordan, J.; Lowe, J. and Taylor, P., 1998, “Strategy and financial policy in UK small firms”, Journal of Business Finance & Accounting, 25 (1) & (2), January/March, 1-27.
https://doi.org/10.1111/1468-5957.00176
Majluf, Nicholas S. and Stewart C. Myers. ""Corporate Financing and Investment Decisions When Firms Have Information That
Investors Do Not Have,"" Journal of Financial Economics, Vol. 13, No. 2, 1984, pp. 187-221.
https://doi.org/10.1016/0304-405X(84)90023-0
Mann, H. B., & Whitney, D. R. (1947), “On a test of whether one of 2 random variables is stochastically larger than the other”, Annals of Mathematical Statistics, 18, 50-60.
https://doi.org/10.1214/aoms/1177730491
Michaelas, N., Chittenden, F., Poutziouris, P. (1999), “Financial Policy and Capital Structure Choice in U.K. SMEs: Empirical Evidence from Company Panel Data”, Small Business Economics, Vol. 12 No. 2, pp. 113–130.
https://doi.org/10.1023/A:1008010724051
Modigliani, F. and Miller, M. (1958).The Cost of Capital, Corporate Finance and the theory of investment. American Economic Review, 48, 261-97.
Modigliani, F. and Miller, M. (1963). Corporate income taxes and the cost of capital – a correction , American Economic Review , Vol.53 No. 3, pp. 433-443.
Mohammad Alipour, Mir Farhad Seddigh Mohammadi, Hojjatollah Derakhshan, (2015) ""Determinants of capital structure: an empirical study of firms in Iran"", International Journal of Law and Management, Vol. 57 Issue: 1, pp.53-83.
https://doi.org/10.1108/IJLMA-01-2013-0004
Mouamer. Faris M, (2011),""The determinants of capital structure of Palestine-listed companies"", The Journal of Risk Finance, Vol. 12 Iss 3 pp. 226 – 241
https://doi.org/10.1108/15265941111136969
Myers, S.C. (1977) Determinants of Corporate Borrowing. Journal of Financial Economics, 5, 147-175.
https://doi.org/10.1016/0304-405X(77)90015-0
Myers, Stewart C. 1984. ""The Capital Structure Puzzle."" Journal of Finance. July, 39:3, pp. 575-92.
https://doi.org/10.2307/2327916
Myers, Stewart, C. 2001. ""Capital Structure."" Journal of Economic Perspectives, 15 (2): 81-102.
https://doi.org/10.1257/jep.15.2.81
Omet, G. and Nobanee, H. (2001). The Capital Structure of Listed Industrial Companies in Jordan, Arab Journal of Administrative Sciences, 8 (2): 273-289.
Ooi, J. (1999), “The determinants of capital structure: evidence on UK property companies”, Journal of Property Investment & Finance, Vol. 17 No. 5, pp. 464 80.
https://doi.org/10.1108/14635789910294886
Ozkan, A. 2001. Determinants of Capital Structure and Adjustment to Long Run Target: Evidence from UK Company Panel Data, Journal of Business Finance and Accounting, 28: 175-198.
https://doi.org/10.1111/1468-5957.00370
Rajan, R. and Zingales, L. (1995) What Do Know About Capital Structure? Some Evidence from International Data, The Journal of Finance, 50: 1421-1460.
https://doi.org/10.1111/j.1540-6261.1995.tb05184.x
Remmers, L., A. Stonehill, R. Wright and T. Beekhuisen (1974). ‘Industry and Size as Debt Ratio Determinants in Manufacturing Internationally’, Financial Management (Summer), pp. 24- 32
https://doi.org/10.2307/3665286
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Published
2019-08-06
How to Cite
Khasawneh, A. Y. (2019). Parametric, Non-Parametric and Multivariate Analysis of Capital Structure During the Financial Crises in Jordanian Banks. Journal of Reviews on Global Economics, 8, 399–416. https://doi.org/10.6000/1929-7092.2019.08.34
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