Bank capital and risk in emerging banking of Jordan: a simultaneous approach

Figures & data

Table 2. Descriptive statistics of the variables.

Variable	Mean	Std. Dev	Min	Max
CAP	−.0010583	0.028816	−0.07645	0.154744
RISK	0.0052161	0.063199	−0.19084	0.1781023
REG	0.0363636	0.18805	0	1
SIZE	21.424	1.004749	20.05615	23.97595
LIQUIDITY	63.30602	14.04095	2.512486	101.9485
ROA	1.396273	.5384293	−0.17	2.51
LOSS	15.67186	1.538872	12.59134	19.54682
LAGCAP	0.2051486	0.045078	0.135579	0.3296973
LAGRISK	0.6879911	0.102412	0.44052	0.9626323
LAGREG	0.0366972	0.188886	0	1
LNSMC	19.64018	1.197167	18.16323	23.06939

Note. Max = Maximum, Min = Minimum, S.D. = Standard Deviation.

Table 3. Correlation among the variables.

Variables	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)
(1) CAP	1.000
(2) RISK	−0.591	1.000
(3) SIZE	−0.101	−0.014	1.000
(4) LIQUIDITY	0.013	0.234	−0.231	1.000
(5) ROA	0.147	0.137	−0.026	0.182	1.000
(6) LOSS	−0.129	0.057	0.699	−0.125	−0.346	1.000
(7) LAGCAP	−0.364	0.267	0.302	0.060	0.151	0.199	1.000
(8) LAGRISK	0.129	−0.312	−0.321	0.319	−0.256	−0.104	−0.453	1.000
(9) LAGREG	0.056	0.077	−0.005	0.026	−0.189	0.092	−0.255	0.018	1.000
(10) LNSMC	−0.062	0.023	0.937	−0.192	0.142	0.591	0.420	−0.354	−0.116	1.000

Table 4. Empirical results for bank capital and risk for the period 2010–2019.

	(CAP)	(RISK)
Variables	GMM	GMM
CAPt−1	−0.0669
	(0.0583)
Risk	−0.2557***
	(0.0227)
Size	−0.0150***	−0.0488***
	(0.0046)	(0.0115)
Liquidity	0.0003***	0.0015***
	(0.0001)	(0.0003)
ROA	0.0132***
	(0.0026)
LAGCAP	−0.2091***
	(0.0342)
LAGREG	0.0176***	0.0545***
	(0.0063)	(0.0168)
LNSMC	0.0133***	0.0341***
	(0.0040)	(0.0091)
Riskt−1		−0.1777*
		(0.0949)
CAP		−1.6028***
		(0.1388)
Loss		0.0018
		(0.0035)
LAGRISK		−0.2063***
		(0.0446)
Constant	0.0661*	0.3986***
	(0.0352)	(0.1129)
Observations	88	88
Number of id	11	11
Wald chi2	321.38***	331.78***
Sargan Test (Prob)	20.95 (0.584)	17.21 (0.19)
AR(2)	−1.85 (0.065)	−0.82 (0.41)

*** p < .01, **p < .05, *p < .1.

Table 5. The empirical results of banks capital and risk (2010–2019).

Equation	Obs	Parms	RMSE	R^2	chi2	P
cap	99	7	0. 0209	0.4681	165.71	.000
risk	99	7	0.0439	0.5108	184.29	.000
			(CAP)		(RISK)
VARIABLES			3SLS		3SLS
RISK			−0.3759***
			(0.0319)
SIZE			−0.0189***		−.0405***
			(0.0067)		(.0145)
LIQUIDITY			0.0004**		.0014***
			(0.0002)		(.0004)
ROA			0.0072*
			(0.0039)
LAGCAP			−0.0953*
			(0.0496)
LAGREG			0.0252**		.0543**
			(0.0109)		(.0226)
LNSMC			0.0163***		.0292***
			(0.0059)		(.0112)
CAP					−1.7044***
					(.1399)
LOSS					.0020
					(.0036)
LAGRISK					−.1372***
					(.0427)
Constant			0.0722		.2715**
			(0.0562)		(.1297)
Observations			99		99
R-squared			0.4681		.5108
Chi2 (Prob > chi2)			42.11 (0.0000)

*** p < .01.

** p < .05.

* p < .1.

Table 6. Empirical results of banks capital and risk.

	(CAP)	(RISK)	(RISK)	(RISK)
VARIABLES	FE	RE	FE	RE
RISK	−0.2461***	−0.2725***
	(0.0352)	(0.0358)
SIZE	−0.0393***	−0.0186***	−0.0299	−0.0398**
	(0.0108)	(0.0071)	(0.0228)	(0.0158)
LIQUIDITY	0.0001	0.0003	0.0014***	0.0015***
	(0.0002)	(0.0002)	(0.0004)	(0.0004)
LAGREG	0.0235**	0.0187	0.0468*	0.0451*
	(0.0115)	(0.0115)	(0.0236)	(0.0234)
ROA	0.0087	0.0096**
	(0.0056)	(0.0044)
LAGCAP	−0.3891***	−0.1964***
	(0.0764)	(0.0571)
LNSMC	0.0301***	0.0169***	0.0249	0.0226*
	(0.0099)	(0.0063)	(0.0197)	(0.0122)
CAP			−1.1945***	−1.2490***
			(0.1498)	(0.1530)
LOSS			0.0070*	0.0064
			(0.0042)	(0.0042)
LAGRISK			−0.3916***	−0.2555***
			(0.0624)	(0.0509)
Constant	0.3157	0.0748	0.2241	0.3889***
	(0.2963)	(0.0588)	(0.5846)	(0.1475)
R-squared	0.6273		0.6747
Wald-Chi2/F-Stat	19.48***	99.21***	24.00***	128.96***
Hausman value	26.12***		18.95***

*** p < .01.

** p < .05.

* p < .1.

Table 7. Empirical results of banks capital and risk (ZSCORE) with control variables estimation technique: GMM.

	(1)	(2)	(3)	(4)
VARIABLES	CAP	Z-SCORE	CAP	Z-SCORE
L.CAP	−0.2456*		−0.2483*
	(0.1293)		(0.1271)
ZSCORE	−0.0003		−0.0003
	(0.0002)		(0.0002)
SIZE	−0.0160**	−5.0431	−0.0154**	1.2164
	(0.0074)	(5.8777)	(0.0076)	(3.8627)
LIQUIDITY	0.0001	−0.0248	0.0001	−0.0753
	(0.0002)	(0.1159)	(0.0002)	(0.0931)
ROA	0.0099**		0.0093**
	(0.0042)		(0.0042)
LAGCAP	−0.3638***		−0.3618***
	(0.0673)		(0.0666)
LAGREG	0.0067	13.7747**	0.0075	11.3326**
	(0.0101)	(6.5505)	(0.0101)	(5.0715)
LNSMC	0.0150**	7.2787*	0.0145**	2.4567
	(0.0063)	(4.3716)	(0.0063)	(2.9121)
L.ZSCORE		0.0718		−0.3773
		(0.3632)		(0.2523)
CAP		3.5280		7.4193
		(49.6877)		(37.6140)
LOSS		−3.5295**		−3.5535***
		(1.4413)		(1.1322)
LAGZSCORE		−0.3185***		−0.1880***
		(0.1052)		(0.0714)
INFLATION			0.0008	0.3392
			(0.0008)	(0.4080)
RGDP			−0.0009	0.5187
			(0.0042)	(2.3918)
Constant	0.1043*	34.9273	0.1000	−8.6779
	(0.0560)	(44.0275)	(0.0612)	(30.1067)
Observations	88	88	88	88
Number of id	11	11	11	11
Wald chi2	111.17	36.98	113.02	62.61
Sargan Test (Prob)	8.33 (0.82)	6.60 (0.92)	8.02 (0.84)	21.07 (0.07)
AR(2)	−0.74	0.54	−0.69	−0.54
Prob > z (AR)	0.43	0.59	0.49	0.59

Table 8. Empirical results of banks capital and risk (ZSCORE) estimation method: Three stage least square (3SLS).

Equation	Obs	Parms	RMSE	R^2	chi2	P
CAP	99	7	0.025	0.240	33.890	.000
ZSCORE	99	7	10.830	0.201	27.430	.000
			(1)		(2)
VARIABLES			CAP		ZSCORE
ZSCORE			−0.0006**
			(0.0002)
SIZE			−0.0167*		5.0717
			(0.0087)		(3.8553)
LIQUIDITY			−0.0000		−.0645
			(0.0002)		(.0932)
ROA			0.0086
			(0.0055)
LAGCAP			−0.2968***
			(0.0662)
LAGREG			0.0100		7.4521
			(0.0138)		(5.8962)
LNSMC			0.0159**		−1.4037
			(0.0076)		(2.8924)
CAP					−72.0277*
					(39.1292)
LOSS					−3.6010***
					(1.0878)
LAGZSCORE					−.1747***
					(0.0480)
Constant			0.0945		−14.5611
			(0.0708)		(32.1700)
Observations			99		99
R-squared			0.2399		.2006
Chi2 (Prob > chi2)			46.85 (0.0000)

*** p < .01.

** p < .05.

* p < .1.

Table 1. Variables and measurement.

Variables	Notation	Measurement	Type	Source
Dependent Variables
Chang in Capital	Δ CAP	Ratio of capital to total assets (RCTA) and ratio of capital to risk weighted assets (RCWA) observed changes for bank j throughout time period t. The same ratios were employed in earlier research (see, for instance, Aggarwal and Jacques, 2001; Ediz et al., 1998; and Rime, 2001).	Bank-specific	ASE
Change in Risk	Δ RISK	Risk levels were tracked for bank j throughout the course of time, and the risk-weighted total assets to total assets ratio was calculated. The proxy has been used in prior investigations, such as those by Jacques and Nigro (1997), Aggarwal and Jacques (1998), and Rime (2001).	Bank-specific	ASE
Independent variables
Bank size	SIZE	Size (SIZE) is measured by natural log of the total assets i.e. Ln of Total Assets. In the literature the Size variable examine by many studies such as Jacques and Nigro (1997); Aggarwal and Jacques (1998); and Rime (2001); Gropp and Heider (2010); Das and Ghosh (2004); Lindquist (2004); Van Roy (2005); and Floquet and Biekpe (2008).	Bank-specific	ASE
Return on Assets	ROA	Return on Assets (ROA) is measure through Net income/Total assets. From the literature proxy has been used such as (Aggarwal and Jacques 1998; and Rime, 2001; Tanda, 2015; and Mahdi and Abbes, 2018)	Bank-specific	ASE
Liquidity	LTD	Liquidity is measure by Total Loans/ Total Deposits. To estimate bank liquidity, we use the ratio of total loans to total deposits. Both capital and risk equations contain the ratio of total loans to total deposits (LTD).	Bank-specific	ASE
Loan loss provision	LLP	It is introduced as an explanatory variable in the risk equation by Rime (2001); Gropp and Heider (2010, pp. 587-622); Cannata and Quagliariello (2006)	Bank-specific	ASE
Regulatory Pressure	REG	If a bank’s capital adequacy ratio is below the regulatory capital minimum of 12%, then REG = 1. If a bank’s capital adequacy ratio is equal to or greater than the legal minimum of 12%, then REG = 0. We can take the examples from literature such as (Awdeh, El-Moussawi, and Machrouh, 2011; and Zhang, Jun, and Liu, 2008, pp. 183-189)	Bank-specific	ASE
Stock market capitalization (LNSMC)		It is measured by multiplying stock market price and outstanding shares of the bank. Natural log (ln) of SMC is used in this study.	Bank-specific	ASE

Source: ASE, CBJ, Data-Stream and Bloomberg.

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Data availability statement

Data used in this research will be available on request. Readers can request for data on following email after publication of paper.