Capital Structure and Market Power: Evidence from Jordanian Banks
AbstractThis 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.
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Bibliographic InfoArticle provided by University of Primorska, Faculty of Management Koper in its journal Managing Global Transitions.
Volume (Year): 9 (2011)
Issue (Month): 3 ()
Find related papers by 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
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert Marquez, 2002. "Competition, Adverse Selection, and Information Dispersion in the Banking Industry," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 901-926.
- Robert Hauswald & Robert Marquez, 2006. "Competition and Strategic Information Acquisition in Credit Markets," Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 967-1000.
- Heshmati, Almas, 2001. "The Dynamics of Capital Structure: Evidence from Swedish Micro and Small Firms," Working Paper Series in Economics and Finance 0440, Stockholm School of Economics.
- Pratomo, Wahyu Ario & Ismail, Abdul Ghafar, 2006. "Islamic Bank Performance And Capital Structure," MPRA Paper 6012, University Library of Munich, Germany.
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- Johnson, Shane A., 1997. "An Empirical Analysis of the Determinants of Corporate Debt Ownership Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(01), pages 47-69, March.
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