27 September 2016
Manama, Bahrain - The relationship between capital structure and performance in Gulf Countries Banks, came under the spotlight in a comparative study between Islamic Banks and Conventional Banks. The study by Associate Professor in Finance and Banking, College of Business Administration, Finance and Accounting Department at Kingdom University Dr. Abdelrhman Meero, has been met with great success and was published in the International Journal of Economics and Finance.

The study mainly had two objectives; the first was to identify the similarity of capital structure between Islamic and Conventional Banks, while the second objective was to detect the relationship between capital structure variable and performance of Islamic and Conventional banks within the Gulf Countries.

Speaking on the importance of continuous research in this field, Dr. Abdelrhman Meero said: "The relationship between capital structure and firm performance is widely discussed and tested in the comparative study, as despite the numerous studies of this subject, the effect of capital structure on firm performance is still the most perplexing issue in corporate finance literature. In developed countries, research is considered to be of great importance however, in developing countries it is yet to be given the same importance. For this reason, the study aims to compare the similarity of capital structure between Islamic Banks and Conventional Banks, to detect the significance of the relationship between capital structure and banks performance".

"It is imperative to conduct continuous studies and research in this field, especially as new trends and regulations are periodically introduced by governing authorities in this sector. Once we understand the relationship between capital structure and performance in Gulf Countries Banks, we shall be able to identify the impact of new legislations and procedures," Dr. Meero added.

The comparative study was performed on a sample of 16 regional banks: 8 Islamic and 8 Conventional, for the period of 9 years between 2005 and 2014. In order to conduct the study, Return of Asset and Return on Equity were used as performance measures, while Total Debt to Total Assets, Equity to Total Assets and Debt to Equity Ratios were used as capital structure measures. 

Results of the study show that there is a similarity of capital structure of Islamic banks and Conventional banks in Gulf Countries, which is comparable to the findings of previous researches. According to the study, the similarity of capital structure could be the result of the regulation system of the Gulf Countries, which controls the two types of banks by the same capital adequacy regulations. The study shows a relationship between performance and capital structure in both Islamic and conventional banks. More research should be conducted in this field to support investors and managers in GCC banking sector.

This research was supported by the Kingdom University, one of the first private educational institutions in the Kingdom of Bahrain, which is offering unique educational experience designed to prepare students to engage in community-building and meet the challenges of career life. With experience earned for more than a decade, Kingdom University offers a range of undergraduate programs administered by some of the best professional lecturers, as well as diverse and distinct programs including Bachelor studies, some of which some are accredited by the Association of Chartered Certified Accountants (ACCA). The University seeks to develop accomplished and proficient individuals who immensely contribute to their country, in its consistent drive towards excellence, innovation and an all-encompassing nature in its offerings.


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© Press Release 2016