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The impact of capital structure on Islamic banks performance: evidence from gulf cooperation council (GCC) countries

Menacer, Abdesslam (2020) The impact of capital structure on Islamic banks performance: evidence from gulf cooperation council (GCC) countries. Doctoral thesis, Universiti Utara Malaysia.

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Abstract

Many past studies on capital structure were on conventional financial firms; research on Islamic banks (IBs) on the topic is almost silent. The extant scant literature on IBs capital structure has explored on theoretical grounds, while empirical investigation is
still in the infancy stage. Accordingly, it is evident that based on the Islamic profit and loss trade-off perspective, theoretical hypotheses and empirical findings provide a novel addition to the capital structure literature for IBs. Using a panel-corrected standard error
model, this study examines the effect of capital structure on the performance of 25 fullfledged IBs in GCC countries over the period 2005-2017. To investigate the reverse causality between performance and capital structure, Granger causality has also been
used. Overall, the results show that there is a significant impact of capital structure on the performance of IBs. More specifically, long term debt has a negative and significant impact, while debt ratio, equity ratio, and financial leverage have positive significant impact on IBs’ performance. The Granger Causality Test shows that the effect of capital structure on bank performance cannot be completely determined due to the mixed results. In terms of theories, the study finds evidence to support the Pecking Order
Theory, Trade-off Theory, and Causality Theory. The results are also robust when excluding the periods of the global financial crisis and Arab Spring. The findings of this study have major policy implications. Long-term debt should be kept at a low amount to increase bank performance since the lower the long-term debt the higher the bank performance. IBs need to maintain higher equity as they will provide more durability and strengthen their financial position and ability to deal with financial risks. The level of financial leverage committed by the IBs should depend on their flexibility
in adjusting their debt value and earning power.

Item Type: Thesis (Doctoral)
Supervisor : Ahmad, Nor Hayati and Al-Yousfi, Abdulazeez Yousef Hazzaa Saif
Item ID: 9208
Uncontrolled Keywords: Capital structure; Islamic banks; Performance; Causality; GCC.
Subjects: H Social Sciences > HG Finance
Divisions: Islamic Business School
Date Deposited: 29 Mar 2022 06:29
Last Modified: 29 Mar 2022 06:29
Department: Islamic Business School
Name: Ahmad, Nor Hayati and Al-Yousfi, Abdulazeez Yousef Hazzaa Saif
URI: https://etd.uum.edu.my/id/eprint/9208

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