Highlighting Determinants of Financial Performance of the Jordanian Financial Sector: Panel Data Approach

Abstract

This study was aimed at identifying the main determinants of financial performance in Jordanian financial sector over 2005-2016 periods. Profitability ratio (return on equity) was used as a proxy of financial performance measurement. Meanwhile, firms’ specific variables, macroeconomic variables and non-economic factors were used as explanation variables. Panel data set for four sub-sectors of financial sector over the above period were used. Pooled OLS, Fixed effect, random effects techniques with Heteroskedasticity and Serial Correlation Robust Standard Error estimation methods were employed. The empirical results showed that liquidity and leverage were the key determinants of financial performance while risk, macroeconomic factors and non-economic factors do not affect the financial performance of financial sector in Amman Stock Exchange. Therefore, the results conclude that financial performance is mainly driven by firm specific factors (company characteristics). Thus, a sound financial performance can be obtained by giving attention to firm specific variables.