Capital structure, ownership and crisis: evidence from Middle East and North African banks

Abstract

Purpose

Although understanding the capital structure of firms has been quite commonplace in the empirical literature, there is admittedly limited evidence with regard to the determinants of capital structure for banks. In this context, using data for the period 2000-2012, this paper aims to examine the factors affecting the capital structure of Middle East and North African (MENA) banks.

Design/methodology/approach

The data span the period 2000-2012 and comprise of over 100 banks from 12 MENA countries. Given the longitudinal nature of the data, the panel uses panel data techniques and controls for unobserved bank characteristics that might affect capital structure.

Findings

The findings indicate that the factors driving book leverage are similar to those influencing market leverage. These findings refute the conventional wisdom that bank capital structure is purely a response to the regulatory requirements, as otherwise, regulatory concerns would have driven a wedge between these two leverage measures. Second, the crisis appears to have exerted a perceptible impact on bank capital. Third, in terms of ownership, it appears that the crisis-support measures had a salutary effect on Islamic banks, in turn improving their growth opportunities.

Research/limitations/implications

This is the first study to examine the determinants of capital structure for MENA banks and how it evolved during the crisis. By using both book- and market-related measures of capital structure, the study is able to shed light whether regulatory concerns are a major driven of bank capital. As the recent financial crisis indicates, bank failures impose enormous social and economic costs, which are protracted and significant.

Practical implications

From a practical standpoint, the study seeks to inform the policy debate on the role of regulation in impacting bank capital, especially in the light of the envisaged Basel III reforms. In addition, the study suggests that classroom teaching on bank capital needs to be suitably refined to take on board country-specific requirements and, in addition, focus on how such behavior evolved during the crisis.

Originality/value

This is the first study to examine the determinants of capital structure for MENA banks and how it evolved during the crisis. By using both book- and market-related measures of capital structure, the study is able to shed light whether regulatory concerns are a major driven of bank capital. As the recent financial crisis indicates, bank failures impose enormous social and economic costs, which are protracted and significant.

Citation

Ghosh, S. (2018), "Capital structure, ownership and crisis: evidence from Middle East and North African banks", Accounting Research Journal, Vol. 31 No. 2, pp. 284-300. https://doi.org/10.1108/ARJ-09-2015-0121