SavedAdd your journal

Journals / Journal of Economics Finance and Accounting / 2026 / Volume: 13 Issue: 1

DETERMINANTS OF CAPITAL STRUCTURE POLICY IN CONVENTIONAL AND ISLAMIC BANKS: EVIDENCE FROM INDONESIA

Saiful Saiful(Bengkulu University)0000-0002-3950-6696
Pages
—
Publication Date
2026-06-30
🏛️Bibliographic metadata and full text access for this article are provided via DergiPark.
DergiPark Record ↗
✨

AI Summary & Key Takeaways

AI Insight
⚡ TL;DR(Too Long; Didn't Read)

Findings- The results show that profitability negatively affects capital structure in conventional banks, supporting the Pecking Order Theory, while it has a positive effect in Islamic banks, consistent with the Trade-Off Theory.

📌 3 Key Takeaways

🎯
Objective & Hypothesis:Purpose- This study examines the determinants of capital structure in Indonesian banks by analyzing the effects of profitability, bank size, growth, and asset tangibility, while comparing capital structure policy between conventional and Islamic banking systems.
📊
Key Findings & Data:Methodology- This research utilizes panel data regression using a sample of 28 conventional banks and 9 Islamic banks observed over a four-year period (for the year 2021-2024), resulting in 148 bank-year observations.
💡
Conclusion & Impact:Findings- The results show that profitability negatively affects capital structure in conventional banks, supporting the Pecking Order Theory, while it has a positive effect in Islamic banks, consistent with the Trade-Off Theory.
🔬Design:Modeling & Simulation
📍Scope:2021-2024 Verileri
⚙️Variables:Capital structure · banking sector · profitability of banks

Abstract

Purpose- This study examines the determinants of capital structure in Indonesian banks by analyzing the effects of profitability, bank size, growth, and asset tangibility, while comparing capital structure policy between conventional and Islamic banking systems. Methodology- This research utilizes panel data regression using a sample of 28 conventional banks and 9 Islamic banks observed over a four-year period (for the year 2021-2024), resulting in 148 bank-year observations. Separate regression models are estimated for conventional and Islamic banks to capture differences in capital structure determinants. Findings- The results show that profitability negatively affects capital structure in conventional banks, supporting the Pecking Order Theory, while it has a positive effect in Islamic banks, consistent with the Trade-Off Theory. Bank size negatively influences capital structure in conventional banks but positively affects it in Islamic banks. Growth is insignificant for conventional banks but positively associated with capital structure in Islamic banks. Asset tangibility increases financial leverage of conventional banks, but it has no significant effect on Islamic banks’ capital structure. Conclusion- The study concludes that capital structure decisions differ fundamentally between conventional and Islamic banks in Indonesia. Conventional banks’ policy is better explained by the Pecking Order Theory, whereas Islamic banks follow a Trade Off Theory. These findings indicate the importance of adopting institution-specific capital policies in dual banking systems.

🔖

Cite This Article

Saiful, S. (2026). DETERMINANTS OF CAPITAL STRUCTURE POLICY IN CONVENTIONAL AND ISLAMIC BANKS: EVIDENCE FROM INDONESIA. Journal of Economics Finance and Accounting, Volume: 13 Issue: 1. https://doi.org/10.17261/Pressacademia.2026.2041

📄 Full Text PDF Viewer

📄

PDF görüntüleyici hazırlanıyor...

References (47)

  1. Abdullah, M. N., Chowdhury, E. K., & Tooheen, R. B. (2022). Determinants of capital structure in the banking sector: A Bangladesh perspective. SN Business and Economics, 2(12), 190-205.
  2. Ahmeti, Y., Kalimashi, A., Ahmeti, A., & Ahmeti, S. (2023). The Capital Structure Determinants of Banking Sector of Western Balkan Countries. Ekonomika, 102(1), 102–121.
  3. Al-Hunnayan, S. H. (2020). The capital structure decisions of Islamic banks in the GCC. Journal of Islamic Accounting and Business Research, 11(3), 745–764.
  4. Ali, K., Akhtar, M. F. & Sadaqat, S. (2011). Practical implication of capital structure theories: Empirical evidence from the commercial banks of Pakistan. European Journal of Social Sciences, 23(1), 165-173.
  5. Alipour, M., Seddigh, M, F., & Derakhsan, H. (2015). Determinants of Capital Structure: An Empirical Study Of Firms in Iran. International Journal of Law and Management, 57(1), 53-83.
  6. Al-Mutairi, A., & Naser, K. (2015). Determinants of Capital Structure of Banking Sector in GCC: An Empirical Investigation. Asian Economic and Financial Review, 5(7), 959-972.
  7. Amidu, M. (2007). Determinants of capital structure of banks in Ghana: an empirical approach, Baltic Journal of Management, 2(1), 67 – 79.
  8. Assfaw, A. M. (2020). The Determinants of Capital structure in Ethiopian Private Commercial Banks: A Panel Data Approach. Journal of Economics, Business, & Accountancy Ventura, 23(1), 108–124
  9. Boateng, A (2004). Determinants of capital structure. International Journal of Social Economics, 31(1/2), 56 – 66
  10. Berryman, J., (1982). Small business uniqueness and the theory of financial management. Journal of Small Business Finance, 25, 43-59.
  11. Brigham, E. F., & Houston, J. F. (2016). Fundamentals of Financial Management (14th ed.). Boston, MA: Cengage Learning
  12. Chadha, S & Sharma, A. K., (2015), Determinants of capital structure: an empirical evaluation from India. Journal of Advances in Management Research, 12(1), 3 – 14.
  13. Datta, D. & Agarwal, B. (2008). Determinants of Capital Structure of India Corporate Sector in The Period of Bull Run 2003-2007 - An Econometric Study. Paper is presented at ICBF 2009.
  14. Eldomiaty, T. I. (2008), Determinants of corporate capital structure: evidence from an emerging economy. International Journal of Commerce and Management, 17(1/2), 25 – 43.
  15. Eriotis, D., Vasiliou, N., & Neokosmidi, Z. V., (2007). How firm characteristics affect capital structure: an empirical study. Managerial Finance, 33(5), 321 – 331
  16. Grigham, E. & Gapenski, (1996). Financial management. Dallas: The Dryden Press
  17. Groth, J. C., & Anderson, R. C. (1997). Capital structure: perspectives for managers. Management Decision, 35(7), 552 – 561.
  18. Hoque, H., & Liu, H. (2022). Capital structure of Islamic banks: How different are they from conventional banks? Global Finance Journal, 54, 1365-1378.
  19. Haron, R. (2014), Capital structure inconclusiveness: evidence from Malaysia, Thailand, and Singapore. International Journal of Managerial Finance, 10(1); 23 – 38
  20. Juca, M. N., Sousa, A. F. D. & Fishlow, A. (2012). Capital structure determinant of North American banks and the compensation executive program- An empirical study on the actual systemic crisis. International Journal of Business and Management, 7(17), 13-26.
  21. Kebede, T. N. (2024). Firm-specific and country-level determinants of commercial banks capital structures: evidence from Ethiopia. Journal of Innovation and Entrepreneurship, 13:60-71.
  22. Khan, S., Bashir, U., & Islam, M. S. (2021). Determinants of capital structure of banks: evidence from the Kingdom of Saudi Arabia. International Journal of Islamic and Middle Eastern Finance and Management, 14(2), 268–285.
  23. Mabandla, N. Z., & Marozva, G. (2025). Determinants of Capital Structure: Does Growth Opportunity Matter? Journal of Risk and Financial Management, 18(7). 385-396.
  24. Meutia, C. S.D., Faisal, & Sakir, A. (2024). The Effect of Asset Structure, Bank Size, Profitability, Bank Growth, and Liquidity on Capital Structure of Islamic Banking in Indonesia. International Journal of Asian Business and Management, 3(4), 407–424.
  25. Miller, M, (1977). Debt and Taxes. Journal of Finance, 32(2), 261-275.
  26. Modigliani, F. & M. Miller, (1963). Corporate income taxes and the cost of capital: A correction. American Economic Review, 53, 443–453.
  27. Mohammad, K. U. (2022). How bank capital structure decision-making change in recessions: Covid-19 evidence from Pakistan. Asian Journal of Economics and Banking, 6(2), 255–269.
  28. Mohammed, Renas. I., Kovan M. A. Gewdan., & Islam S. T. Babela. (2017). Factors Affecting Capital Structure of The Banks Listed on Iraqi Stock Exchange (2009-2014). Humanities Journal of University of Zakho, 5(2), 487-495.
  29. Myers, S. C. (1977). The Capital Structure Puzzle. Journal of Finance. 39(3), 575-592.
  30. Myers, S.C. (2001). Capital Structure. The Journal of Economic Perspectives. 15(2), 81-102.
  31. Myers, S. C., & Majluf, N. S. (1984). Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have. Journal of Financial Economics, 13(2), 187–221.
  32. Omran, M. M & Pointon, J. (2009), Capital structure and firm characteristics: an empirical analysis from Egypt, Review of Accounting and Finance, 8(4), 454 – 474
  33. Rehan, R., Khan, M. A., Fu, G. H., Sa’ad, A. A., & Irshad, A. (2024). The Determinants of Shariah Banks’ Capital Structure. International Journal of Economics and Financial Issues, 14(5), 193–202.
  34. Sayeed, M. A. (2011). The Determinant of Capital Structure for Selected Bangladeshi Listed Companies. International Review of Business Research Papers, 7 (2), 21-36.
  35. Shahid, H., Akmal. M., & Mehmood, S. (2016). Effect of Profitability and Financial Leverage on Capital Structure in Pakistan Commercial Banks. International Review of Management and Business Research, 5(1), 336-342.
  36. Sheikh, N. A., & Qureshi, M. A. (2017). Determinants of Capital Structure of Islamic and Conventional Commercial Banks: Evidence From Pakistan. International Journal of Islamic and Middle Eastern Finance and Management, 10(1), 24-41.
  37. Sheikh, N. A., & Wang, Z. (2011), Determinants of capital structure: An empirical study of firms in manufacturing industry of Pakistan. Managerial Finance, 37(2), 117 – 133.
  38. Sheikh, N. A., & Wang, Z, (2013), The impact of capital structure on performance, International Journal of Commerce and Management, 23(4), 354 – 368.
  39. Shibru, W. (2012). Determinants of Capital Structure of Commercial Banks in Ethiopia. Thesis. Ethiopia: Degree of Master of Science Addis Ababa University.
  40. Smart, S. B., Megginson., & Gitman, L. J. (2004). Corporate Finance. Ohio: South-Western, Thomson Learning.
  41. Song, H-S. (2005). Capital Structure Determinants: An Empirical Study of Swedish Companies. Electronic Working Paper Series.
  42. Titman, S & Wessels, R. (1988). The Determinants of Capital Structure Choice. The Journal of Finance, 43(1), 1-19.
  43. Twairesh, A. E., & Alsarhan, A. (2025). Determinants of capital structure in the banking sector: Empirical evidence from Jordan and Saudi Arabia. International Journal of Innovative Research and Scientific Studies, 8(4), 2089–2099.
  44. Van Dinh, D., & Huyen, V. T. T. (2024). Commercial banks’ capital structure and performance in Vietnam: Panel data model approach. Banks and Bank Systems, 19(2), 126–139.
  45. Viviani, J_L, (2008), Capital structure determinants: an empirical study of French companies in the wine industry. International Journal of Wine Business Research, 20(2), 171 – 194
  46. Yilmaz, I., & Alghazali, A. (2024). Determinants of capital structure in the financial sector: Evidence from GCC countries. International Journal of Economics, Management and Accounting, 32(2), 299–328.
  47. Zhang, R. & Kanazaki, Y. (2007), Testing static trade off against pecking order models of capital structure in Japanese firms. International Journal of Accounting & Information Management, 15(2), 24 – 36.