Determinants of capital structure in the banking sector: Empirical evidence from Jordan and Saudi Arabia

The primary aim of this study is to examine the influence of bank-specific factors on the capital structure decisions of commercial banks in Jordan and Saudi Arabia over the period 2009 to 2023. To achieve this, panel data regression techniques were employed, with the fixed effects model selected based on statistical diagnostic testing. The sample consisted of 12 Jordanian banks and 10 Saudi banks, with data extracted from annual financial statements available on official bank websites, the Amman Stock Exchange, and the Saudi Stock Exchange. The empirical results reveal that asset tangibility and growth opportunities exhibit a positive relationship with the capital structure of Jordanian banks but a negative association in the case of Saudi banks. Profitability was found to exert a positive influence on capital structure across both banking systems. Conversely, risk measured in terms of earnings volatility demonstrated a consistent negative impact on capital structure in both countries. Liquidity showed divergent effects, being negatively associated with capital structure in Jordanian banks and positively associated in Saudi banks. The non-debt tax shield variable negatively influenced capital structure in Jordanian banks but appeared to have no statistically significant effect in Saudi banks. Lastly, bank size was positively related to capital structure in both samples. These findings offer practical implications for bank management in both Jordan and Saudi Arabia. Specifically, financial decision-makers should account for the differential effects of bank-specific variables, particularly risk, profitability, and asset structure, when formulating optimal capital structures. Recognizing the inverse relationship between earnings volatility and leverage can support more informed and resilient financing strategies.