Analyzing the Determinants of Bank Profitability: The impact of Size, Growth, Efficiency, and Financial Structure in Iraq
DOI:
https://doi.org/10.71207/ijas.v21i84.3220Abstract
This study investigates the influence of financial factors on bank profitability using return on equity (ROE) as the dependent variable. The independent variables include Bank Size (BS), Growth (GRO), Asset Utilization Ratio (AUR), Equity Multiplier (EM), and Debt-to-Assets Ratio (DTA). Data for 10 listed banks in the Iraqi stock market between the years 2017 and 2021 were used in this study with the Generalized Least Squares (GLS) method to provide accurate estimations. This period was selected because of the significant development of the banking sector in Iraq. The results show that bank size (BS) and growth (GRO) have no significant effects on profitability, indicating that as operations get more complicated and expenses rise, company and asset expansion may not always translate into higher returns. Efficiency ratio (AUR), on the other hand, has a big influence and emphasizes how crucial it is to use assets efficiently in order to generate bank profitability. Debt to assets ratio (DTA) negatively impacts profitability in terms of capital structure, implying that an excessive reliance on debt increases financial expenses and possible risks. On the other hand, the equity multiplier (EM) has a positive impact on profitability, indicating that banks may perform better by keeping their debt levels at an ideal level. These findings highlight the need of a sensible debt management plan. Future studies should focus on bank profitability by considering additional factors, such as macroeconomic factors and regulatory frameworks must be taken into account.
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