Journal of Applied Finance & Banking

Commercial Banks Profitability and Stock Market Developments

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  • Abstract

    The study examines whether the market capitalization and trading volume could be the determinants of the commercial banks profitability in Jordan and then to evaluate which performance measure between returns on assets (ROA) and returns on equity (ROE) is better to be used in measuring the profitability of those banks. Two Multiple regression models are used to examine these relationships for 13 Jordanian commercial banks within 2009-2013. It is found that market capitalization variable has negative and significant influence on ROA, but it has significant positive influence on ROE; trading volume has strongly significant and positive influence on both ROE and ROA, suggesting that trading volume is the determinant for the profitability; and finally, ROE is a more superior measure of profitability to ROA. Our results might assist all interested parties in indicating the relationship boundaries between stock market developments and banks’ profitability then may represent an explanation for financial incentives and barriers in financing nonfinancial industries which will be affected by the changes in bank competition in stock market.