The Impact of Bank Performance and Credit Risk on Capital Structure: An Empirical Evidence of Jordanian Bank Sector


The study investigates the impact of credit risk of banks measured by the ratio of  reserves of Loan Losses to Gross Loans, the performance of bank measured by Return on Equity ratio, and Bank size measured by the log of the total assets of the bank on capital structure of banks measured by Equity to Asset ratio on 11 Jordanian commercial banks listed in Amman Stock Exchange over the period 2010–2015, The existence of such a relationship has important implications for bank decision makers.

The study used Fixed Effect Regression; Empirical evidence showed that bank credit risk has a positive effect on capital structure, while the bank performance has a negative impact on capital structure. In addition, bank size as a control variable played a negative role on capital structure. I also recommended that the future researches will directed to pursue the approach by using substitutional accounting indications of banking risk, and to investigate the impact of the firm’s capital performance and risk on its capital structure.

Author Biography

Dua'a Fawzi Shubita, lecturer Department of Finance Business School, Jordan University

Dua'a F. Shubita is a lecturer at the Department of Finance Business School, Jordan University. She received an M.Sc. degree in Finance from Jordan University in 2008. She received her B.Sc degree in Finance from the Jordan University in 2006. She had a traineeship in a brokerage firm and nine years of experience in the academic education sector.  Her research interests are corporate finance, financial management, Bank management, and international finance.


Agusman, A., Monroe, G.S., Gasbarro, D., & Zumwalt, J.K. (2008). Accounting and capital market measures of risk: evidence from Asian banks during 1998–2003. Journal of Banking & Finance, 32(4), 480-488.

Alshubiri, F.N. (2011). Capital structure and market power: evidence from Jordanian banks. Managing Global Transitions, 9(3), 289.

Altunbas, Y., Carbo, S., Gardener, E.P., & Molyneux, P. (2007). Examining the relationships between capital, risk and efficiency in European banking. European Financial Management, 13(1), 49-70.

Amidu, M., & Hinson, R. (2006). Credit risk, capital structure and lending decisions of banks in Ghana. Banks and Bank systems, 1(1), 93-101.

Amman Stock Exchange, Annual Reports, Many Years, Amman, Jordan.

Ayaydin, H., & Karakaya, A. (2014). The effect of bank capital on profitability and risk in Turkish banking. International Journal of Business and Social Science, 5(1).

Berger, A.N. (1995). The relationship between capital and earnings in banking. Journal of money, credit and Banking, 27(2), 432-456.

Cebenoyan, A.S., & Strahan, P. (2000). Risk management, capital structure and capital budgeting in financial institutions. Working paper.

Cebenoyan, A.S., & Strahan, P. (2004). Risk management, capital structure and lending at banks. Journal of Banking & Finance, 28(1), 19-43.

Froot, K.A., Scharfstein, D.S., & Stein, J.C. (1993). Risk management: Coordinating corporate investment and financing policies. Journal of Finance, 48(5), 1629-1658.

Froot, K.A., & Stein, J.C. (1998). Risk management, capital budgeting, and capital structure policy for financial institutions: an integrated approach. Journal of Financial Economics, 47(1), 55-82.

Gleason, K.C., Mathur, L.K., & Mathur, I. (2000). The interrelationship between culture, capital structure, and performance: evidence from European retailers. Journal of Business Research, 50(2), 185-191.

Kyereboah-Coleman, A. (2007). The impact of capital structure on the performance of microfinance institutions. The Journal of Risk Finance, 8(1), 56-71.

Lin, S.L., Chen, W.P., & Lu, J. (2015). Relationship between banks’ capital and credit risk-taking through syndicated loan. Modern Economy, 6, 1297-1308.

Masa’deh, R., Tayeh, M., Al-Jarrah, I., & Tarhini, A. (2015). Accounting vs. market-based measures of firm performance related to information technology investments. International Review of Social Sciences and Humanities, 9(1), 129-145.

Modigliani, F., & Miller, M.H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261-297.

Modigliani, F., & Miller, M.H. (1963). Corporate income taxes and the cost of capital: a correction. The American Economic Review, 53(3), 433-443.

Obeidat, B., El-Rimawi, S., Maqableh, M., & Al-Jarrah, I. (2013). Evaluating the profitability of the Islamic banks in Jordan. European Journal of Economics, Finance and Administrative Sciences, 56, 27-36.

Ozili, P.K., & Uadiale, O. (2017). Ownership concentration and bank profitability. Future Business Journal, 3(2), 159-171.

Soliman, A., Mukhtar, A., & Shubita, M. (2018). The long-term relationship between enterprise risk management and bank performance: the missing link in Nigeria. Banks and Bank Systems.
How to Cite
SHUBITA, Dua'a Fawzi. The Impact of Bank Performance and Credit Risk on Capital Structure: An Empirical Evidence of Jordanian Bank Sector. Journal of Social Sciences (COES&RJ-JSS), [S.l.], v. 7, p. 350-357, oct. 2018. ISSN 2305-9249. Available at: <>. Date accessed: 17 nov. 2018. doi: