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Impacts of Capital Structure on Performance of Islamic and Conventional Banks: Evidence from Bangladesh

Author

Listed:
  • Anwar Zahid

    (Lecturer, Independent University, Bangladesh)

  • Chinmoy Das Gupta

    (Lecturer, Army Institute of Business Administration, Bangladesh)

  • Retnoningrum Hidayah

    (Lecturer, Universitas Negeri Semarang, Indonesia)

  • Ishaq Shariar

    (Business Graduate, Independent University, Bangladesh)

Abstract

Capital structure of the banking sector has a significant influence on performance measurement. Many studies have investigated the relationship between capital structure and the performance of banks but there is a relative shortage of empirical studies investigating the connection between capital structure and the performance of Islamic and conventional banks particularly from emerging economies. The main purpose of this research is to empirically study the capital structure and the performance of both Islamic and conventional banks in Bangladesh. Panel data of 24 banks (6 Islamic banks out of 8 and 18 conventional banks out of 41 banks) has been taken for the period of 2010 to 2017. Data has been analyzed by using EViews software. T-test has been used to determine the statistical evidence of the differential performance of both groups of bank. Outputs of T-test for the variables include; total debt ratio, short term debt, long term debt and loan to asset ratio indicate the existence of statistically strong significant difference between the capital structure of Islamic and conventional banks. In case of conventional banks, ROA as a performance measure is positively and significantly related to loan to asset and inflation variables. Similarly, evidence has been found that statistically, there is a strong positive association of loan to asset and strong negative connection of GDP on ROE. However, in case of Islamic bank, the outcomes reveal the existence of positive and significant impacts of loan to asset on ROA and ROE.

Suggested Citation

  • Anwar Zahid & Chinmoy Das Gupta & Retnoningrum Hidayah & Ishaq Shariar, 2022. "Impacts of Capital Structure on Performance of Islamic and Conventional Banks: Evidence from Bangladesh," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(1), pages 539-544, January.
    • Handle: RePEc:bcp:journl:v:6:y:2022:i:1:p:539-544
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    References listed on IDEAS

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    1. Berger, Allen N, 1995. "The Relationship between Capital and Earnings in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 432-456, May.
    2. Berger, Allen N. & Bonaccorsi di Patti, Emilia, 2006. "Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry," Journal of Banking & Finance, Elsevier, vol. 30(4), pages 1065-1102, April.
    3. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    4. Md. Nur Alam Siddik & Sajal Kabiraj & Shanmugan Joghee, 2017. "Impacts of Capital Structure on Performance of Banks in a Developing Economy: Evidence from Bangladesh," IJFS, MDPI, vol. 5(2), pages 1-18, May.
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