Capital Structure Effects on Banking Performance: A Case Study of Jordan (original) (raw)

This study examines the impact of capital structure on performance of Jordanian banks. The annual financial statements of 12 commercial banks listed on Amman Stock Exchange were used for this study which covers a period of five (5) years from 2007-2011. Multiple regressions was applied on performance indicators such as Net Profit (NP), Return on Capital Employed (ROCE), Return on Equity (ROE) and Net Interest Margin (NIM) as well as Total Debt to Total Funds (TDTF) and Total Debt to Total Equity (TDTE) as capital structure variables. Multiple regression models are applied to estimate the relationship between capital structure and banking performance. The results show that bank performance, which is measured by net profit, return on capital employed and net interest margin is to be significantly and positively associated with total debt; while total debt is found to be insignificant in determining return on equity in the banking industry of Jordan.