The impact of capital structure on bank performance in emerging markets : empirical evidence from GCC countries

The current literature is equivocal and provides inconsistent evidence about the relationship between firms' performance and capital structure choices. This study adds the empirical evi- dence on association between capital structure and bank performance to this inconclusive de- bate. It uses the data of commercial conventional banks listed on various stock exchanges of six Gulf Cooperation Countries (GCC) i.e. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the Unit- ed Arab Emirates. The study uses unbalanced panel data of 50 banks operating in these coun- tries during 2012 to 2017, having 299 bank year observations. ROA and ROE are used as perfor- mance variables, with total debt ratio as explanatory variables. Bank size, assets tangibility, earn- ings volatility, growth, GDP growth rate, and inflation rates are employed as control variables. Three regression techniques, pooled OLS, fixed effects and random effects estimations are used to explore the relationship. The results suggest leverage and the control variables have a sub- stantial effect on the performance of banks but are distinctive in nature as per the banking in- dustry compared to non-financial firms.