Bank capital adequacy and its impact on profitability and market value indicators: An applied study

Abstract

The study aimed to know the impact of capital adequacy on the profitability of commercial banks, as well as knowing the impact of capital adequacy on shares' prices of commercial banks in the Iraqi stock market. The study is targeted a group of commercial banks operating in Iraq, and therefore the importance of this study comes to determine relationship between capital adequacy and its impact on the profitability growth of commercial banks in Iraq. And knowing the extent to which the share prices of these banks are affected by the capital adequacy rate. The panel data simple was applied to reveal the nature of the relationship between capital adequacy and the profitability and stock prices for a sample of 8 Iraqi commercial banks for the period 2011 to 2018. The study proved that capital adequacy could negatively affects the profitability of ROE, which means that an increase in capital adequacy by one unit will lead to a reduction in the profitability by (0.005) units, and also that capital adequacy negatively affects stock prices commercial banks. This means that an increase in capital adequacy by one unit will lead to a decrease in the share prices of commercial banks by (0.0029) units. Hence, and through the results that have been reached, the appropriate ratio of capital adequacy must be maintained and not to increase it in random and unstudied ways because that It will negatively affect the volume of profits realized by banks and their market shares value.

Keywords

• Capital adequacy, profitability of commercial banks, stock market value, commercial banks.