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Capital Structure and Market Power: Evidence from Jordanian Banks

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  • Faris Nasif Al-Shubiri

    (Department of Finance and Banking, College of Business, Amman Arab University, Jordan)

Abstract

This paper provides new insights into the way in which the capital structure and market power and capital structure and profitability are related. We used sample data of fourteen banks listed on the Amman Stock Exchange for the period from 2005 to 2008.We examine the dependent variable, which are expressed by total debt deflated by total assets, while the independent variables are Tobin Q, Growth, Profitability, Size, Ownership, Risk and Tangibility ratio. The OLS estimation results indicate that, at lower and higher ranges of Tobin’s Q, banks employ higher debt, and reduce their debt at intermediate range. This is due to the complex interaction of market conditions, agency costs, and bankruptcy costs. We also show the saucer-shaped relation between capital structure and profitability because of the interplay of agency costs, costs of external financing and interest tax-shield. We find that size tangibility variables have a positive influence both on capital structure and on the other hand on growth, while risk and ownership variables have a negative influence on capital structure.

Suggested Citation

  • Faris Nasif Al-Shubiri, 2011. "Capital Structure and Market Power: Evidence from Jordanian Banks," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 9(3), pages 289-310.
    • Handle: RePEc:mgt:youmgt:v:9:y:2011:i:3:p:289-310
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    References listed on IDEAS

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    1. Tharinee Pongsupatt & Apichat Pongsupatt, 0000. "Determinants Of Capital Structure On Banking Sector Case Study: Listed Company In Thailand Stock Exchange," Proceedings of Economics and Finance Conferences 14115977, International Institute of Social and Economic Sciences.
    2. Agha Jahanzeb & Norkhairul Hafiz Bajuri & Aisha Ghori & David McMillan, 2015. "Market power versus capital structure determinants: Do they impact leverage?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1017948-101, December.
    3. Dua'a Fawzi Shubita, 2018. "The Impact of Bank Performance and Credit Risk on Capital Structure: An Empirical Evidence of Jordanian Bank Sector," Journal of Social Sciences (COES&RJ-JSS), , vol. 7(4), pages 350-357, October.
    4. Abdesslam Menacer & Abdulazeez Y. H. Saif-Alyousfi & Nor Hayati Ahmad, 2020. "The Effect of Financial Leverage on the Islamic Banks¡¯ Performance in the Gulf Cooperation Council (GCC) Countries," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(1), pages 13-24, January.

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    More about this item

    Keywords

    aknowledge; competitiveness; firm performance; knowledge-based theory;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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