IDEAS home Printed from https://ideas.repec.org/a/sae/sagope/v13y2023i4p21582440231204600.html
   My bibliography  Save this article

The Capital Structure Decisions of Banks: An Evidence From MENA Region

Author

Listed:
  • Shoaib Khan
  • Usman Bashir
  • Hend Abdulhadi Saleh Attuwaijri
  • Usman Khalid

Abstract

The study examines the significant factors affecting the capital structure decisions for banks’ in MENA region. An unbalanced panel data comprising of 132 banks operating in fifteen different countries of the MENA region from 2012 to 2017, data was extracted from Bank Scope resulting in 891 bank year observations. Macroeconomic indicators and institutional characteristics data has been taken from World Bank and World Bank governance indicators database and financial freedom data has been collected from heritage foundation. We use the two-step system Generalized Method of Moments (GMM) to explore the relationship between dependent and explanatory variables. The regression outcome between profitability and leverage shows a negative and significant relationship. No significant association between tangibility and leverage is found. Earnings volatility is negatively and significantly related to leverage. The relationship between growth and leverage is negative and significant. Macroeconomic indicators GDP growth and inflation show a positive relationship with leverage. Finally, the institutional factors, that is, government effectiveness, political stability, and rule of law have positive association with leverage. The study results will lend a hand to bank managers to make value-maximizing financing decisions to achieve an optimal capital structure. It will also help the policymakers to articulate an effective regulatory framework in the region. As per our knowledge, this is the first study to explore the determining factors of capital structure for banks operating in the MENA region. Moreover, the findings from MENA region banks could also support the comparative study with other regional blocks.

Suggested Citation

  • Shoaib Khan & Usman Bashir & Hend Abdulhadi Saleh Attuwaijri & Usman Khalid, 2023. "The Capital Structure Decisions of Banks: An Evidence From MENA Region," SAGE Open, , vol. 13(4), pages 21582440231, December.
    • Handle: RePEc:sae:sagope:v:13:y:2023:i:4:p:21582440231204600
    DOI: 10.1177/21582440231204600
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/21582440231204600
    Download Restriction: no
    File URL: https://libkey.io/10.1177/21582440231204600?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Olson, Dennis & Zoubi, Taisier A., 2011. "Efficiency and bank profitability in MENA countries," Emerging Markets Review, Elsevier, vol. 12(2), pages 94-110, June.
    2. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. "On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-878, July.
    3. repec:eme:mfppss:v:40:y:2014:i:12:p:1190-1206 is not listed on IDEAS
    4. Saibal Ghosh & Goutam Chatterjee, 2018. "Capital structure, ownership and crisis: how different are banks?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 26(2), pages 300-330, May.
    5. Asli Demirgüč-Kunt & Luc Laeven & Ross Levine, 2004. "Regulations, market structure, institutions, and the cost of financial intermediation," Proceedings, Federal Reserve Bank of Cleveland, pages 593-626.
    6. Franklin Allen & Elena Carletti & Robert Marquez, 2011. "Credit Market Competition and Capital Regulation," The Review of Financial Studies, Society for Financial Studies, vol. 24(4), pages 983-1018.
    7. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    8. Douglas W. Diamond & Raghuram G. Rajan, 2000. "A Theory of Bank Capital," Journal of Finance, American Finance Association, vol. 55(6), pages 2431-2465, December.
    9. de Jong, Abe & Kabir, Rezaul & Nguyen, Thuy Thu, 2008. "Capital structure around the world: The roles of firm- and country-specific determinants," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1954-1969, September.
    10. Lang, Larry & Ofek, Eli & Stulz, Rene M., 1996. "Leverage, investment, and firm growth," Journal of Financial Economics, Elsevier, vol. 40(1), pages 3-29, January.
    11. Reint Gropp & Florian Heider, 2010. "The Determinants of Bank Capital Structure," Review of Finance, European Finance Association, vol. 14(4), pages 587-622.
    12. Belkhir, Mohamed & Maghyereh, Aktham & Awartani, Basel, 2016. "Institutions and corporate capital structure in the MENA region," Emerging Markets Review, Elsevier, vol. 26(C), pages 99-129.
    13. Chen, Jean J., 2004. "Determinants of capital structure of Chinese-listed companies," Journal of Business Research, Elsevier, vol. 57(12), pages 1341-1351, December.
    14. W/Michael Shibru & Hamdu Kedir & Yonas Mekonnen, 2015. "Factors Affecting the Financing Policy of Commercial Banks in Ethiopia," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 4(2), pages 44-53, April.
    15. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    16. repec:bla:jfinan:v:43:y:1988:i:2:p:271-81 is not listed on IDEAS
    17. Harris, Milton & Raviv, Artur, 1991. "The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    18. Laurence Booth & Varouj Aivazian & Asli Demirguc‐Kunt & Vojislav Maksimovic, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, February.
    19. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    20. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    21. Muntazir Hussain & Usman Bashir, 2019. "Impact of Monetary Policy on Bank Lending: Does Market Structure Matter?," International Economic Journal, Taylor & Francis Journals, vol. 33(4), pages 620-648, October.
    22. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    23. Murray Z. Frank & Vidhan K. Goyal, 2009. "Capital Structure Decisions: Which Factors Are Reliably Important?," Financial Management, Financial Management Association International, vol. 38(1), pages 1-37, March.
    24. Sayed Hashem Al-Hunnayan, 2020. "The capital structure decisions of Islamic banks in the GCC," Journal of Islamic Accounting and Business Research, Emerald Group Publishing Limited, vol. 11(4), pages 745-764, March.
    25. Timothy J. Brailsford & Barry R. Oliver & Sandra L. H. Pua, 2002. "On the relation between ownership structure and capital structure," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 42(1), pages 1-26, March.
    26. Flannery, Mark J, 1994. "Debt Maturity and the Deadweight Cost of Leverage: Optimally Financing Banking Firms," American Economic Review, American Economic Association, vol. 84(1), pages 320-331, March.
    27. Nadeem Ahmed Sheikh & Muhammad Azeem Qureshi, 2017. "Determinants of capital structure of Islamic and conventional commercial banks," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 10(1), pages 24-41, April.
    28. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    29. Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
    30. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    31. Usman Bashir & Yugang Yu & Muntazir Hussain & Xiao Wang & Ahmed Ali, 2017. "Do banking system transparency and competition affect nonperforming loans in the Chinese banking sector?," Applied Economics Letters, Taylor & Francis Journals, vol. 24(21), pages 1519-1525, December.
    32. Hayam Wahba, 2014. "Capital structure, managerial ownership and firm performance: evidence from Egypt," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1041-1061, November.
    33. Khan Shoaib & Suzuki Yasushi, 2016. "Ownership And Capital Structure Of Pakistani Non-Financial Firms," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 12(1), pages 57-67, June.
    34. Rajan, Raghuram G & Zingales, Luigi, 1995. "What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    35. repec:bla:jfinan:v:43:y:1988:i:1:p:1-19 is not listed on IDEAS
    36. Wald, John K, 1999. "How Firm Characteristics Affect Capital Structure: An International Comparison," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(2), pages 161-187, Summer.
    37. Malcolm Baker & Jeffrey Wurgler, 2002. "Market Timing and Capital Structure," Journal of Finance, American Finance Association, vol. 57(1), pages 1-32, February.
    38. Kraus, Alan & Litzenberger, Robert H, 1973. "A State-Preference Model of Optimal Financial Leverage," Journal of Finance, American Finance Association, vol. 28(4), pages 911-922, September.
    39. John K. Wald, 1999. "How Firm Characteristics Affect Capital Structure: An International Comparison," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(2), pages 161-187, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alessandra Amendola & Marinella Boccia & Gianluca Mele & Luca Sensini, 2020. "Tax Policy and Firms' Financial Choices: Empirical Evidence from the Dominican Republic," MIC 2020: The 20th Management International Conference,, University of Primorska Press.
    2. Mai, Nhat Chi, 2012. "Market timing, taxes and capital structure: evidence from Vietnam," OSF Preprints t3mvs, Center for Open Science.
    3. Yildirim, Ramazan & Masih, Mansur & Bacha, Obiyathulla Ismath, 2018. "Determinants of capital structure: evidence from Shari'ah compliant and non-compliant firms," Pacific-Basin Finance Journal, Elsevier, vol. 51(C), pages 198-219.
    4. Viet Anh Dang, 2011. "Testing Capital Structure Theories Using Error Correction Models: Evidence From The Uk, France And Germany," Post-Print hal-00732527, HAL.
    5. Imran Yousaf & Arshad Hassan, 2016. "Effect of Family Control on Corporate Financing Decisions: A Case of Pakistan," PIDE-Working Papers 2016:138, Pakistan Institute of Development Economics.
    6. Temimi, Akram & Zeitun, Rami & Mimouni, Karim, 2016. "How does the tax status of a country impact capital structure? Evidence from the GCC region," Journal of Multinational Financial Management, Elsevier, vol. 37, pages 71-89.
    7. Vo, Xuan Vinh, 2017. "Determinants of capital structure in emerging markets: Evidence from Vietnam," Research in International Business and Finance, Elsevier, vol. 40(C), pages 105-113.
    8. Heider, Florian & Gropp, Reint E., 2008. "The Determinants of Capital Structure: Some Evidence from Banks," ZEW Discussion Papers 08-015, ZEW - Leibniz Centre for European Economic Research.
    9. Rana El Bahsh & Ali Alattar & Aziz N. Yusuf, 2018. "Firm, Industry and Country Level Determinants of Capital Structure: Evidence from Jordan," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 175-190.
    10. Muhammad Yusuf Amin & Amanat Ali & Bashir Khan, 2019. "Capital Structure of Chinese Firms Across different Sectors: Does Ownership Structure Matter?," Global Economics Review, Humanity Only, vol. 4(2), pages 70-82, June.
    11. Miguel Acedo-Ramírez & Juan Ayala-Calvo & José Rodríguez-Osés, 2013. "Capital structure of small companies in the Spanish footwear sector: relevant factors," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(2), pages 155-173, June.
    12. Aleksandra Stoiljković & Slavica Tomić & Bojan Leković & Milenko Matić, 2022. "Determinants of Capital Structure: Empirical Evidence of Manufacturing Companies in the Republic of Serbia," Sustainability, MDPI, vol. 15(1), pages 1-19, December.
    13. Valeriya Valer’evna Metel’skaya, 2021. "Correlation-and-regression analysis of the influence of macroeconomic factors on capital structure of Russian corporations under crisis conditions," Journal of Innovation and Entrepreneurship, Springer, vol. 10(1), pages 1-34, December.
    14. Niluthpaul Sarker & Roushanara Islam, 2021. "Issues on Bank’s Capital Structure and Profitability: A Developing Country Context," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 86-104.
    15. Ramli, Nur Ainna & Latan, Hengky & Solovida, Grace T., 2019. "Determinants of capital structure and firm financial performance—A PLS-SEM approach: Evidence from Malaysia and Indonesia," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 148-160.
    16. Khémiri, Wafa & Noubbigh, Hédi, 2018. "Determinants of capital structure: Evidence from sub-Saharan African firms," The Quarterly Review of Economics and Finance, Elsevier, vol. 70(C), pages 150-159.
    17. Elena Alexandra Nenu & Georgeta Vintilă & Ştefan Cristian Gherghina, 2018. "The Impact of Capital Structure on Risk and Firm Performance: Empirical Evidence for the Bucharest Stock Exchange Listed Companies," IJFS, MDPI, vol. 6(2), pages 1-29, April.
    18. Mário Santos & António Moreira & Elisabete Vieira, 2014. "Ownership concentration, contestability, family firms, and capital structure," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(4), pages 1063-1107, November.
    19. Antonczyk, Ron Christian & Salzmann, Astrid Juliane, 2014. "Overconfidence and optimism: The effect of national culture on capital structure," Research in International Business and Finance, Elsevier, vol. 31(C), pages 132-151.
    20. Li, Larry & Islam, Silvia Z., 2019. "Firm and industry specific determinants of capital structure: Evidence from the Australian market," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 425-437.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:sagope:v:13:y:2023:i:4:p:21582440231204600. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.