Capital Structure and Market Power: Evidence from Jordanian Banks

Faris Nasif Al-Shubiri
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Faris Nasif Al-Shubiri: Department of Finance and Banking, College of Business, Amman Arab University, Jordan
Authors registered in the RePEc Author Service: faris nasif ALShubiri

Managing Global Transitions, 2011, vol. 9, issue 3, 289-310

Abstract: This 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.

Keywords: aknowledge; competitiveness; firm performance; knowledge-based theory (search for similar items in EconPapers)
JEL-codes: G21 G28 G30 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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