English Abstract
Abstract :
Purpose- The aim of this study is to explore the impact of a bank's capital structure on its financial
performance. Crafting a specific and comprehensive capital structure for a bank, one that optimizes
performance, profitability, size-independent shareholder value, and various other factors, proves to be
a challenging endeavor. It is incumbent upon a bank to strategically determine its capital structure,
aiming to enhance overall performance, minimize agency costs, and ultimately yield benefits for
shareholders as the financing cycle concludes. Profitability is the most important element for companies
if they plan to prevail in the long run. Although profit is the main objective of all business activities,
little attention is paid to the factors that influence performance in developing countries. The elements
that affect the performance of the Bahrain Bourse’s listed financial institutions are hence investigated
and evaluated in this research.
Methodology- This investigation is founded on an empirical evaluation that explores the correlation
between efficiency, a single control variable, and three distinct independent components. In this study,
the chosen metrics for assessing bank profitability include return on assets, return on equity, and return
on capital employed. The size of assets is selected as the control variable. The capital structure is
measured by using three independent variables: total debt-total asset ratio (TDTA), total debt-total
equity ratio (TDTE, also referred to as the leverage ratio), and total equity-total asset ratio (TETA). The
data used for the analysis were extracted from annual reports from 2011 to 2020 for nine banks listed
on the Bahrain Bourse. Panel Least Square analysis and Stationary Effect techniques have been
employed in this study.
Findings- The data reveals that the TDTA ratio shows a favorable effect on all the firm performance
(ROA, ROE, ROCE). This ratio is strongly related to the firm’s performance. TDTE has a negative
impact on the firm’s performance (ROA, ROE, ROCE). The findings also show a positive association
between TETA, SIZE, and performance (ROA and ROCE) but provide a negative association with ROE.
Originality & Value- A crucial management choice is the capital structure decision as this choice
immediately affects an enterprise's profitability as well as the return and risk to shareholders. Therefore,
this study shows how banks can increase their efficiency and value while minimizing capital costs by
the careful choice of capital structure. Bank managers, Policy makers, Academics, and Researchers who
plan to utilize the study’s conclusion as a starting point for further investigations into the Bahrain Stock
Exchange capital structure may find it useful.
