The Impacts of Capital Structure on Bank Performance

Abstract

Purpose:\xa0This study studies the effect of capital structure on the performance of some Iraqi private banks. Six banks based in Iraq namely: Babylon Bank, Investment Bank, Credit Bank, Commercial Bank, Sharq Al-Awsat Bank, and Baghdad Bank were selected for the present study over the period 2005 to 2015.\xa0Methodology:\xa0Annual reports of these banks were studied and relevant ratios were calculated. The variables that were identified as independent for capital structure were total debt to capital, bank size and asset growth, while return on assets and return on equity were considered to be dependent variables for bank performance. The panel Least Square model has been used to examine the impact of capital structure on bank performance.\xa0Findings:\xa0\xa0Outcomes indicate that none of the independent variables has a significant impact on return on assets (ROA), while total debt to capital (TDC) has a positive impact on return on equity (ROE).\xa0Reduction:\xa0Depending on this result, Iraqi banks should keep sufficient amount of capital to avoid any financial risks and increase the probability of survival.