IMPACT OF CAPITAL STRUCTURE ON PERFORMANCE OF ISLAMIC BANKS

Abstract

This research study intends to investigate the impact of capital structure on performance of IB’s to furnish direction to (finance) bank managers for maximizing capital. In Pakistan banking industry Islamic banks (IB’s) are confronting a trade-off between high capital ratio that increase the safety and soundness of Islamic banks (IB’s) or lower the required return of investors. The managers of Islamic banks (IB’s) must decide carefully the suitable combination of equity and debt (optimal capital structure) to compete with domestic and global markets and increase the profitability of Islamic banks. Thus the sample of five Islamic banks are uses in the context of Pakistan banking industry, multiple regression analysis method are uses to examine the performance factors of Islamic banks (IB’s).The findings indicates that the capital ratio has statistically insignificant and total debt to total equity ratio has statistically significant response on the perfonnance of Islamic banks(IB’s). While size is insignificant variables. .Due to constraints of market data this research is conducted by utilizing accounting ratios. Future research can be done by availability of market data to evaluate the performance.