Effects of Internal and External Factors on Profitability of Jordanian Commercial Banks: Panel Data Approach

Abstract

This article assesses the effects of internal and external factors on the profitability of Jordanian commercial banks. A panel data set of thirteen commercial banks between 2000 and 2018 was used. Pooled ordinary least squares, random and fixed models were applied. Moreover, a Hausman test was performed to confirm the suitability of models, which was preferred on the random effect model. Also, a Wooldridge test for serial correlation and a modified Wald test for groupwise Heteroskedasticity were used and both of their null hypotheses were rejected. However, to deal with these problems, a robustness analysis was performed using feasible generalized least square. The findings suggested that internal factors and in particular, bank size and diversification, had positive effects on bank profitability, while credit risk, operational risk and leverage risk were negatively related to bank performance. However, capital risk had a positive but insignificant impact on bank profitability. As for the effect of external factors, the results suggested that financial development and inflation had a positive and significant impact on bank profitability, while market concentration and stock market volatility had a significant negative effect on bank profitability. Further, a negative and insignificant impact were found for GDP and refugee crisis on bank profitability in Jordan. The findings would help managers of commercial banks, investors, government, policy makers and shareholders to make better decisions and improve performance by highlighting areas of weaknesses. In general, policy makers should become more aware with these insights on profit determinants in Jordanian commercial banks.

Impact of Bank Specific and Macro-Economic Factors on Financial Performance of Commercial Banks in Afghanistan

“…BBC News (2022). As a result, Naderi (2021), Bekhet (2020), andAl-Homaidi et al (2020) recommend the current study investigated the impact of deposit ratio, asset management, the bank's number of branches and ATMs, and external factors such as industry growth rate and taxes on commercial banks' financial performance, whose impact has been studied in other contexts but not in Afghanistan. The theories that support the current study are theories of financial intermediation theory, which state that financial institutes collect funds from customers with surplus and then lend them to those who need money.…”

“…The researchers considered the majority of factors for both internal and external environments, as in previous research, but some important factors were not considered. which needed to be investigated, particularly in Afghanistan (Naderi, 2021;Bekhet, 2020;. Hence, the core objective of the current research is to examine the impact of the suggested factors on the financial success of commercial banks in the context of Afghanistan.…”

“…(Ariyadasa et al, 2017;Knezevic & Dobromirov, 2016; Paolucci & Menicucc, 2016;Bekhet, H. A., Alsmadi, A. M., & Khudari, M., 2020;Shrestha, P. M., 2020;Bucevska & Misheva, 2017).Source:Al-Homaidi, E. A., Tabash, M. I., Farhan, N. H., & Almaqtari, F. A. (2018);Naderi, R. (2021) …”

Highlighting Determinants of Financial Performance of the Jordanian Financial Sector: Panel Data Approach

“…Jordan's economy had another tragedy after Iraqi-War (2003) that neither tremendous oil grants nor heavily discount on oil price existed (Bekhet & Matar, 2013). In addition, the Jordanian economy was threatened by huge government debt and several economic problems in terms of macroeconomic variable (Bekhet and Al-Smadi, 2015;Bekhet, Alsmadi & Khudari, 2020). In August 2019, Jordanian public debts have reached 41.6 USD billion (IMF, 2019).…”