Impact of working capital on the market value and profitability of Jordanian Commercial Banks

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1 Impact of working capital on the market value and profitability of Jordanian Commercial Banks ) ( Dr. Ghazi Al majeed Alrguibat Department of Banking and Finance - Faculty of Business and Finance Management / Al al- Bayt University Mishaan Salem Aldvery Researcher Abstract This study aims to examine the impact of working capital and its components on the profitability of Jordanian commercial banks and their market value, also formulated the problem of the study to answer the questions "Is there an effect of working capital on the profitability of commercial banks of Jordan and its market value?, And whether this different impact depending on the components of working capital? The researcher reached in this study in the basic premise of the first to the existence of the effect statistically significant for all components of working capital combined on the profitability of commercial banks, at the same time the study found an effect statistically significant for both monetary and portfolio of commercial paper discounted, while not there is the effect of portfolio securities on the profitability, to reach this goal research is divided into two parts, first the theoretical framework has been a review of the concepts of capital different, its importance, management of sources of funding in addition to its management of its components, while addressing the second part of this study, the analytical test hypotheses of the study, using analysis of simple and multiple regression depending on the program Statistical Package E- views.did not show statistical results of the hypothesis of the second and there is no effect statistically significant for working capital a society or its components individually on the market value of the Jordanian commercial banks.. Key words : Working capital, Market value, profitability Introduction Commercial banks management faces many financial decisions to solve the sources of liquidity, the correlation between them stems from the importance of both the existence of any institution and continuation,so liquidity necessary to avoid the risk of bankruptcy also profitability is essential for growth, continuity and survival. There is discrepancy between these two elements, such as discrepancy in the Commercial Bank which appears in the form of opposes that explained between the interests of the two groups, which provided funding to the bank, so the shareholders and depositors look forward to high profitability on their investments, and they inclined to a little sacrifice in liquidity in order to improve their profitability, also looking to the safety, possibility of recovering their money when they need it without difficulty, they inevitably tend to more liquidity, the difficult task entrusted to the bank's management is balancing liquidity and profitability, through managing and analysis of COPY RIGHT 2013 Institute of Interdisciplinary Business Research 197

2 working capital cycle in the commercial bank with analyzing cost of funds directed to finance working capital (financing structure), with taking in their considerations the financial leverage to achieve greater return on the invested money, but increasing reliance on borrowed money, without that there will be efficient in using displays bank risk which forcing them to raise the rate of return, and increases cost of borrowing, financing risks and the researcher examined the impact of working capital on market value and profitability of Jordanian commercial banks through the study of the impact of the components of working capital both separately and the total ingredients together, so that the researcher conducting this study (Cross - Sectional Study) on the financial statements of commercial banks. The study sample for the period ( ). Importance of the study: Management of working capital include number of features that make it a great importance for the following reasons: 1 - Working capital considered an a great element for commercial banks; accounting for current assets (assets Cash and cash equivalents) is approximately (58%), of the assets in Jordanian commercial banks at the end of 2012, while formed short-term liabilities of about (76% ), the size of the liabilities college in the same year, despite the fact that commercial banks can reduce their investments in fixed assets by lease, but they can not avoid investing in working capital, due to limited sources of long-term financing available to them, which forced them to rely heavily on short-term sources, (deposits), which amounted in 2012 about million Jordanian dinars a rate of approximately (65%) of the total volume of liabilities, and both of which increases the importance of working capital management for such banks. 2 - Working capital needs to the importance of special management of commercial banks to speed the movement and its importance in achieving profitability Commercial Bank, where the percentage of liquidity data consolidated balance sheet of commercial banks of Jordan (159.1%) in 2011, while the return on assets for the same year 2011 ROA (1.1%), and return on equity ROE (8.8%), while the percentage of coverage Coverage R. (52.0%), and the proportion of Leverage Leverage R. (13.0%). 3 - As an importance of this study the dependence on data of Jordanian commercial banks, which is the size of circulation about (15%) for the volume of shares traded in Amman Stock Exchange in 2011 as well as the size of the assets exceeds the amount of billion Jordanian dinars until the end of the same year While the market value of the banking sector until the end of February of the year 2012 approximately 8,303,137 million Jordanian dinars. Objectives of the study: Researcher seeks through this study to achieve the following objectives: First: to measure the impact of working capital in commercial banks to bank profitability and market value. Second: identify the components of working capital in the Jordanian commercial banks and assessing the impact of these components on the profitability of commercial banks. Third: determine the relative importance of the impact of these factors and how is it different in effect on the profitability of banks and their market value. Fourth: make the necessary recommendations to improve the efficiency of working capital management in the Jordanian commercial banks. Study Problem: policies on working capital decisions Include relating to the assets traded in terms of the elements of the composition, how to use them, the effect of composition on the risks and returns, and policies are necessary for the growth of banks on long-term survival. Unless COPY RIGHT 2013 Institute of Interdisciplinary Business Research 198

3 available at banks working capital needed to increase investments, you may miss opportunities to increase repeat profits. Also, the banks that retain a high level of working capital have available liquidity to enable them to meet their obligations accrual, if what happened Conversely, banks face the burdens associated with low credit rating and compulsory liquidation, So we can summarize study problem through questions : - Is there any effect of working capital in the Jordanian commercial banks on the profitability of those banks? - Is there any effect of working capital in the Jordanian commercial banks on the market value of those banks? - Is there much effect on bank profitability and market value depending on the components of working capital in the Jordanian commercial banks?. Hypotheses: Study Hypotheses put to answer the problem of the study, and was formulated as: The first hypothesis: Ho: there is no impact of the working capital in commercial banks on the profitability of those banks. Which emanated to the following sub-hypotheses: Ho: there is no impact for the cash balances in working capital in the Jordanian commercial banks on the profitability of those banks. Ho: there is no impact for the commercial paper discounted of working capital in the Jordanian commercial banks on the profitability of those banks. Ho: there is no impact for the portfolio in working capital in the Jordanian commercial banks on the profitability of those banks. The second hypothesis: Ho: there is no impact for the working capital in commercial banks on the market value of those banks. Which emanated the following sub-hypotheses: Ho: there is no impact for the cash balances in working capital in the Jordanian commercial banks on the market value of those banks. Ho: there is no impact to the commercial paper discounted for working capital in the Jordanian commercial banks on the market value of those banks. Ho: there is no impact to the portfolio for working capital in the Jordanian commercial banks on the market value of those banks. Model study: Study Model depends on determine the dependent variable and the independent variables according to the following regression equation: Y1, (Y2) = a + b (X1), (X2), (X3) Where is : Y1: The dependent variable (the profitability of banks) return on assets ratio (ROA). Y2: The dependent variable (market value) the market value on the closing prices of the shares of commercial banks in the Amman Stock Exchange during the study period. a: the value of the constant b: A mile of the curve X1: The first independent variable is the amount of cash balances in working capital. X2: Second independent variable is the amount of the Bank's investments in commercial paper discounted in working capital. X3: Third independent variable is the amount of the Bank's investments in securities within the portfolio of working capital. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 199

4 The regression analysis was used within the statistical package E-views and to measure the impact of factors Independent Group, which will be addressed in separate financial analysis and hypothesis testing. Definitions of Study Terminology: - Return on Assets: Profitability ratios measure the effectiveness of recruitment in assets and facilities can be calculated by dividing net income by total assets. The rate of return is calculated on assets according to the following equation: Net income (profit after interest and tax) / total assets of the company - Commercial papers (accounts receivable): Type of facilities that companies give to other individuals or companies guarantee returns for the goods that are selling to be paid the value of these securities later. - Cash balances : Money is kept by the bank in the form of cash in vaults or at the Central Bank in the form of current accounts to meet the deposit withdrawals. - Securities portfolio: Portfolio combination or a group of investment tools, whether real or maintained by the financial investor in order to achieve a return at a reasonable level of risk through diversification of its components. - Market value: The current value of securities and registered according to the latest prices on the flimsiest higher market prices that can be sold securities in the market - Book value: Reflect the book value of the total capital contribution, retained earnings and reserves in the value of the company's shares. Statistical analysis method: It was used statistical packages (E-VIEWS) to test each of the sub-hypotheses both separately as statistical packages used to test the sum of independent factors and their impact on the dependent variable. The timeframe of the study: Depends researcher conducted a study on the financial statements of the Jordanian commercial banks (sample) for the time period of the year 2000 until 2011.The researcher believes that this relatively recent period and reflect the latest developments and financial reflection of the global financial crisis on the financial statements of the Jordanian commercial banks. Society and the study sample : The study population consists of all licensed commercial banks that operating in Jordan according to the classification of the Jordanian Central Bank, this category includes 8 commercial banks 5 investment banks and Islamic banks (11) foreign banks. The study sample. the study sample Include (9) Jordanian commercial banks. These banks were chosen for being the largest Jordanian banks in terms size of assets which constitute about 88% of the total volume of assets of Jordanian banks. Data Sources. I had got data from secondary sources ", monthly newsletters and annual reports that issued officially. And got the raw data through some of specialists in banking COPY RIGHT 2013 Institute of Interdisciplinary Business Research 200

5 The unit of analysis.unit of analysis in this study are the financial statements (balance sheet and income statement) for commercial banks and the notes attached with those lists as published Jordanian commercial banks.. Previous studies : Study (Sabri, 2012) entitled: the impact of working capital, characteristics of the company's profitability and market value, "An Empirical Study on industrial companies listed on the Amman Stock Exchange",2012. The aim of this study is to examine the relationship between working capital and the profitability of the company, with working capital and the value of the company on the other hand. It also aims to research the differences between companies that have high cash conversion cycle, and companies that have a low cash conversion cycle in terms of profitability and value.to achieve the objectives of the study sample was selected from the Jordanian industrial companies that listed in Amman Stock Exchange. Also study covered the period from 2000 to 2009, used regression analysis, Mann-Whitney test to test hypotheses. The results showed that the average cash conversion cycle is equal to 2.9 days, and that working capital is 51% of total assets, also showed the presence of the opposite effect with statistical significance of the cash conversion cycle, and the accounts receivable and debt on profitability. As for the payables period was adversely impact the results showed a positive and significant impact statistically to the size of the company and sales growth on profitability. As for the relationship cycle cash transfer and the receivables valued company, the results indicate the presence of the opposite effect and a statistically significant value of the company, results showed also a difference with statistical significance among companies that have conversion cycle cash high and companies that have cycle cash transfer low in terms of profitability and value, and finally weighted index showed the cash conversion cycle improvement in the management of working capital.study (Haddad, 2010) entitled: cash flow management role in the efficiency of capital investment in the Libyan commercial banks. This study aimed to indicate the role of cash flow management in the efficiency of capital investment in Libyan commercial banks, through shed light on cash flow management in general. The study found a range of important results: there are some bugs in the management of cash flows commercial banks, which reflects negatively on their ability to predict cash flows in terms of timing and size, also the results indicated that the lacks in current planning of cash flows, in addition to significant differences of statistical significance between Libyan commercial banks management cash flows regarding the ability to predict future cash flows, and the extent of its reliance on planning cash sound and effective, results of the study also indicated to a lack of statistically significant differences between the commitment controls targets commercial banks (profitability, liquidity and safety) on the one hand, and the extent of its reliance of financial analysis methods on the other hand. In the light of previous findings the study concluded a set of recommendations which are: to improve the ability of cash flow management in commercial banks with cash flow forecasting in terms of timing and size of the deadlines are different, greater attention to the preparation of COPY RIGHT 2013 Institute of Interdisciplinary Business Research 201

6 budget estimates, in addition to increasing the degree of flexibility and adjustability of the planning flows cash to upgrade the current planning and building policies.study (Alnnif, 2009) entitled: developing a model to predict the level of working capital investment in Jordanian Industrial Corporations, 2005.This study aims to develop a model to predict the level of investment in working capital in the Jordanian industrial companies as a whole and the development of sub-models for each of the main components through analysis of the variables that affect investment decisions. To achieve objectives of the study, the researcher selected a sample from twenty-nine Jordanian industrial companies that listed on the Amman Stock Exchange, until 72 companies and the researcher collects financial data from 1994 to 2003 and then their numbers to conduct statistical tests necessary using the software package Statistical SPSS and software package E-views, and with a view to reaching an appropriate standard model to estimate the limitations impact on the level of working capital investment researcher has used a model based on the (panel data) that combined between the evidence incisive data and time series.the results showed that the central level of working capital investment and its components of cash, receivables and inventory as a percentage of fixed assets amounted to (1.3, 0.07, 0.39, 0.56), respectively, as indicated by the general trend of the average investment in each of the capital and its components the length of the cash transfer, the percentage of sales growth upward, while the trend analysis of the proportion of leverage was descending, the general trend of average return on assets was relatively stable, results also proved that the variables that affect in determining the working capital investment are profitable to company, percentage of sales growth, age of the company and the proportion of financial leverage and the length of the cash transfer, but the variables that affect in the level of investment in cash is the company's life and profitability only, and variables that determine the level of investment in the receivables are profitability, growth of sales, the company's life, the length of the cash transfer, and finally, the variables that influence in determining the level of investment in inventory was only leverage ratio. The researcher in the study recommended the adoption of the model that had reached to determine the level of investment in working capital and using of modern electronic payment to shorten the period of collection of accounts receivables.study (Aghbari, 2007) entitled: The Effect of leverage on the financial performance of food companies Yemeni Researcher aimed through a study to test score impact leverage and (short-term liquidity measured degree of capital adequacy, degree adequacy of working capital) separately, in addition to displaying the results for impact of leverage on the financial performance of Yemeni food industries through the variables of the value of the facility and short liquidity. The researcher reached a significant impact of leverage on the value of the facility at the level of all companies, and to the existence of significant influence of leverage (at the level of each company separately) on short-term liquidity, but for the first variable's researcher recommends companies in order to increase the effectiveness of impact Leverage, the value of the entity rely on sources of financing long-term (long-term loans) and employment are leading to increase cash flows, with respect to the second variable (short-term liquidity), the researcher believes that using of COPY RIGHT 2013 Institute of Interdisciplinary Business Research 202

7 these companies sources of funding short-term are highly reliable. Thus, the researcher recommends against increasing reliance on sources of funding short-term.study (Uyar Ali, 2010) entitled:the relationship of Cash Conversion Cycle with Firm Size and Profitability: an Empirical Investigation in Turkey. The aim of this study was to determine (Benchmarks) or index- cash cycle transfer of industrial and commercial companies, to test the relationship between cash cycle transfer and size of the facility, also between cash cycle transfer and profitability, The researcher collected data for the study from Istanbul Stock Exchange for the year 2007, the number of companies sample are 166 companies.it was measured size of the enterprise total assets, as well as sales revenue, while measure profitability by using return on assets and return on equity, researcher had used statistical analysis to test hypotheses by using the ANOVA test and Pearson correlation.the results showed that the average cycle cash transfer (102) day for all companies, less average cash cycle transfer and found sector wholesale and retail average (34) days, followed by industry, chemical industry, metal goods, food, cement, and finally the textile sector, respectively.the reason that the average cash cycle transfer for trade sector less than the average cycle cash transfer because the wholesale and retail keeps stock for a period of less average of (54) days, and the highest average cash cycle transfer to the textile sector average (164) days, the sector retains stock for a long period average (133) days, as well as the collection period of the receivables take a long time in this sector. With regard to the relationship cash cycle transfer profitability, it has used Pearson correlation that results showed an inverse relationship and statistically significant between the return on assets and cash cycle transfer, there is a relationship statistically significant between return on equity and cash cycle transfer, also there is an inverse relationship between the size of the facility and the cash conversion cycle, finally results showed that the profits of the firms which had a low cash conversion cycle higher than enterprises that have high cash conversion cycle Study researcher (,Akinwande2010) entitled: Working Capital Management in Telecommunication Sector.Objective of this research is to study the effect of working capital management in small and medium-sized enterprises, through the usages of telecommunications company in Sweden as a case study, and to identify the most factors influential, such as management of cash, inventory management and credit management, which collectively affect the effectiveness of the company, and the impact on the slow growth of the company. To achieve the goal of the study,it was drafted questionnaire developed through literature review, in addition to the usage of a range articles in scientific journals and opinions of employees, also the research had been using the internet and messages to send the questionnaire where appropriate, The researcher reached a set of results confirm study on the same assumptions and Weston and others that the company's investment in working capital constitutes a large proportion of the total investment, where it reached in the case of telecommunications company, to 65 percent. The record company's performance in the various components of working capital management as follows, cash management 65.4%, inventory management 78.6% of trade credit, the administrative and financing decisions COPY RIGHT 2013 Institute of Interdisciplinary Business Research 203

8 60.0% and the average overall performance of the company is 68%, it shows that the performance of company is above average, and enhances data analysis financial health of these results, the percentage of high liquidity, collection period is short, and the cycle of liquidity is not wide,these three factors are critical to the growth or failure of the business, therefore, the performance good in working capital management, which affects the Three factors positively and, which contribute to the growth and success of the business. Study (Haitham Nobanee and Maryam Alhajjar 2009) entitled: A note on working Capital Management and Corporate Profitability of Japanese Firms. The main objective of the researchers of this study is to find out the relationship between working capital and profitability, they adopted analysis on a sample of 2123 companies nonfinancial Japanese listed on the Tokyo Stock Exchange, covering the period between , and includes data collected sales, cost of goods sold, receivables, payables, inventory and return on investment, in order to calculate the receivables and the payables, the stock and the cash transfer, but companies that did not have the necessary data to calculate these ratios have been deleted from the sample, they have been using regression analysis and testing Spearman in order to analyze the data, so the results showed that the average period for the collection of receivables (90) days, (67) days of the sale of inventory, the accounts payable (79) days, the average cycle cash transfer for the entire period equal to 76 days. The results of this test (Spearman) showed that there was an inverse relationship and statistically significant between cycle of cash transfer and profitability Regarding relationship period payables profitability, the researcher had tested the relationship for the period ( ), The results showed a positive relationship, but when it was tested relationship for the entire period ( ), the results showed that the relationship is negative, they had been interpreted by the researcher results that when an entity delaying the repayment period, it increased the profitability in the short term, but hurt its reputation and reduce the long-term profits. Statistical analysis and hypothesis testing First: The statistical analysis method. The researcher using analysis of simple and multiple regression through statistical packages E-views, because the regression analysis based on the estimate of the relationship between the dependent variable and the independent variable in the simple regression model or the relationship between the dependent variable and the number of variables independent form of multiple regression, it helps us to understand the changes in the dependent variable due to changes that occur for a variable or independent variables, ie how they affect the independent variables or the independent variable on the dependent variable, Analysis of regression helps us to understand any of the independent variables associated variable's. Hypothesis testing: : The first basic hypothesis :Ho: there is no impact to the working capital in commercial banks on the profitability of those banks. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 204

9 Table (1) Multi-regression for ROA with CASH & SEC & DISSEC Dependent Variable: ROA Method: Least Squares Sample: 1 90 Included observations: 90 Variable Coefficient Std. Error t-statistic Prob. C CASH SEC DISSEC R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Akaike info criterion Sum squared resid Schwarz criterion Log likelihood F-statistic Durbin-Watson stat Prob(F-statistic) Which: ROA: return on assets CASH: cash balances SEC: portfolio DISSEC: discounted commercial paper portfolio When testing this first statistically amounted factor interpretative R2 about 22% as shown in Table (1) This means that the capacity range of factors independent combined (cash, securities portfolio and portfolio trading papers discounted) explained the change in (rate of return on assets) amounted to only 22%. this low rate means that there are other factors that might contribute the impact on the profitability of banks in addition to a variety of working capital, also this effect is statistically significant for this model at a level less than 1%, where it is less than 5% for the F-test, thus rejection the hypothesis that has to be there is an impact of working capital on the profitability for those banks. Although the above independent factors different impact on the Group's only that this effect takes the total factors in multiple regression analysis with each other fully and not measure the impact of each factor independently which had been shown at the above analysis that the portfolio securities did not have an effect on the dependent variable while the remaining factors were influential, has devided from this hypothesis the following sub-hypotheses : - The first sub-hypothesis : Ho: No impact of cash balances in working capital in the Jordanian commercial banks on the profitability of those banks COPY RIGHT 2013 Institute of Interdisciplinary Business Research 205

10 Table (2) Simple-regression for ROA with CASH Dependent Variable: ROA Method:Least Squares Sample: 1 90 Included observations: 90 Variable Coefficient Std. Error t-statistic Prob. C CASH R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Akaike info criterion Sum squared resid Schwarz criterion Log likelihood F-statistic Durbin-Watson stat Prob(F-statistic) When testing this hypothesis statistically amounted factor interpretative R2 about 15.8% as shown in Table (2) This means that the ability independent factor (cash balances) explain the change in (return on assets) amounted to 15.8% only, this ratio means cash balances the largest percentage in the interpretation of the change in profitability (return on assets) which increased 69.5% of the total independent variables, also this effect is statistically significant for this model at a level less than 1%, which is less than 5% for test T, thus there is an impact of cash balances on the profitability for those banks.this is also not consistent with the economic theory that there were an inverse relationship between the size of cash balances and bank profitability which examine the financial statements of commercial banks and find that Jordanian banks have liquidity exceeding in the aggregate the prescribed percentage of the Central Bank of Jordan, which must not be less than 30% of the volume of liquid assets, therefore, the availability of liquidity was evidence of the strength of these banks. - The second sub-hypothesis Ho: There is no impact to the commercial paper discounted in working capital the Jordanian commercial banks on the profitability of those banks. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 206

11 Dependent Variable: ROA Method: Least Squares Sample: 1 90 Included observations: 90 Table (3) Simple-regression for ROA with DISSEC Variable Coefficient Std. Error t-statistic Prob. C DISSEC R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Akaike info criterion Sum squared resid Schwarz criterion Log likelihood F-statistic Durbin-Watson stat Prob(F-statistic) When testing this hypothesis statistically the value factor interpretative R2 less than 0.5% as shown in Table (3) This means that the ability independent(portfolio of commercial papers discounted) to explain the change in the group of (return on assets) of less than 0.5%this ratio that means portfolio ratio 0.003% a percentage III: interpretation of the change in profitability (return on assets) among other independent variables, this effect is not statistically significant at 79% where it is greater than 5% of T test, thus acceptance of there was no effect of discounted commercial paper portfolio on the profitability for commercial banks. - The third sub-hypothesis: Ho: there is no impact to the portfolio in working capital in the Jordanian commercial banks on the profitability of those banks Dependent Variable: ROA Method: Least Squares Sample: 1 90 Included observations: 90 Table (4) Simple-regression for ROA with SEC Variable Coefficient Std. Error t-statistic Prob. C SEC R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Akaike info criterion Sum squared resid Schwarz criterion Log likelihood F-statistic Durbin-Watson stat Prob(F-statistic) When testing this hypothesis statistically amounted factor interpretative R2 about 6.7% as shown in Table No. (4) This means that the ability of (portfolio) to explain the change in the group of (return on assets) amounted to 6.7% only, this ratio meanshe was a worker portfolio ratio 29.5% in the interpretation of the change in profitability (return on assets) of the other COPY RIGHT 2013 Institute of Interdisciplinary Business Research 207

12 total independent variables, this effect is statistically significant for this model at 1.35%, less than 5% to T test, therefore,there is an effect of the securities portfolio on the rate of return on assets. Second basic premise: Ho: there is no impact to the working capital in commercial banks to the market value of those banks Table (5) Multi-regression for MVBV with CASH & SEC & DISSEC Dependent Variable: MVBV Method: Least Squares Sample: 1 90 Included observations: 90 Variable Coefficient Std. Error t-statistic Prob. C CASH SEC DISSEC R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Akaike info criterion Sum squared resid Schwarz criterion Log likelihood F-statistic Durbin-Watson stat Prob(F-statistic) Which: MVBV: the ratio of market value to book value of the share price CASH: cash balances SEC: portfolio DISSEC: discounted commercial paper portfolio When testing this hypothesis statistically amounted factor interpretative R2 about 5.5% as shown in Table No. (5) This means that the capacity range of factors independent (cash, securities portfolio and portfolio trading papers discounted) that explained the change in the group of (market value to the book value for share price), only 5.5% this rate is very low, which means that there are other factors that might contribute to the impact on the market value of those banks in addition to a variety of working capital, so this effect is not statistically significant for this model at a level of 17.5%, where it is the largest of 5% to F test, thus there is no impact to working capital on the market value of those banks, and despite the different ratio of factors that influence the group of independent especially non-impact cash balances on market value, but the multiple regression analysis takes the total combined factors not all independent agent, that devided to the following sub-hypotheses: COPY RIGHT 2013 Institute of Interdisciplinary Business Research 208

13 - The first sub-hypothesis: Ho: there is no impact to the cash balances in working capital in the Jordanian commercial banks on the market value of those banks Dependent Variable: MVBV Method: Least Squares Sample: 1 90 Included observations: 90. Table ) 6 ( Simple-regression for MVBV with CASH Variable Coefficient Std. Error t-statistic Prob. C CASH R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Akaike info criterion Sum squared resid Schwarz criterion Log likelihood F-statistic Durbin-Watson stat Prob(F-statistic) Which: MVBV: the ratio of market value to book value of the share price CASH: cash balances When testing this hypothesis statistically amounted factor interpretative R2 less than 0.5% as shown in Table No. (6) This means that (cash balances) explain the change in the group of (market value to book value of share price) less than 0.5% this ratio means that securities portfolio 17% in the interpretation of the change in the market value ratio (market value to book value of the share price) this effect is not statistically significant for this model at a level of 36.1%, where it greater than 5% to T test, therefore there is no impact for cash balances on the market value of those banks. Also they found data for financial banks that cash balances did not affect the market value of commercial banks shares not influence back to the devaluation of the Governor of total banking assets. The second sub-hypothesis: Ho: there is no impact to the commercial paper discounted in working capital in the Jordanian commercial banks on the market value of those banks COPY RIGHT 2013 Institute of Interdisciplinary Business Research 209

14 Dependent Variable: MVBV Method: Least Squares Sample: 190 Included observations: Table (7) Simple-regression for MVBV with DISSEC Variable Coefficient Std. Error t-statistic Prob. C DISSEC R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Akaike info criterion Sum squared resid Schwarz criterion Log likelihood F-statistic Durbin-Watson stat Prob(F-statistic) Which: MVBV: the ratio of market value to book value of the share price DISSEC: discounted commercial paper portfolio When testing this hypothesis statistically amounted factor interpretative R2 1.9% as shown in Table No. (7) This means that (commercial paper discounted) explain the change in the group of (market value to book value of the share price) 1.9% and this rate means that the portfolio of commercial papers discounted rate 35.7% in the interpretation of the change in the market value ratio (market value to book value of the share price) between other independent variables, this effect is not statistically significant for this model at 18.46%, where it is the largest of 5% to T test, therefore there is no impact of trade portfolio discounted on the market value of those banks. And by reference to the financial statements of the Jordanian commercial banks find that the portfolio of commercial papers discounted is not affecting the market value of the high discount rate in commercial banks, which means its impact on the profitability of banks more than its impact on the market value. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 210

15 - The third sub-hypothesis: Ho: there is no impact to the portfolio in working capital in the Jordanian commercial banks on the market value of those banks Table (8) Simple-regression for MVBV with SEC Dependent Variable: MVBV Method: Least Squares Sample: 1 90 Included observations: 90 Variable Coefficient Std. Error t-statistic Prob. C SEC R-squared Mean dependent var Adjusted R-squared S.D. dependent var S.E. of regression Akaike info criterion Sum squared resid Schwarz criterion Log likelihood F-statistic Durbin-Watson stat Prob(F-statistic) Which: MVBV: the ratio of market value to book value of the share price SEC: portfolio When testing this hypothesis statistically amounted factor interpretative R2 1% as shown in Table No. (8) This means that (portfolio) explains the change in the group of (market value to book value of the share price) 1%, this ratio means portfolio ratio 18.5% in the interpretation of the change in the market value ratio (market value to book value of the share price) between other independent variables, this effect is not statistically significant for this model at a level of 34% as it is larger than 5% to T test, therefore there is no impact of portfolio securities on the market value of those banks. Table (9): Correlation of matrix: (between independents variables) DISSEC DISSEC CASH SEC CASH SEC Which: CASH: cash balances SEC: portfolio DISSEC: discounted commercial paper portfolio It was conducted this test (matrix of Pearson correlation) the aim is to make sure that there are no relationships collinear (Multi-Collinearity) between the independent variables of the study COPY RIGHT 2013 Institute of Interdisciplinary Business Research 211

16 (cash, securities portfolio and portfolio trading paprs discounted), all these ratios less than 80% as shown in Table (9), which means that there is a collinear relationship between the independent variables in this study. III: Summary of Results: 1. The results of the statistical tests supports the existence of any effect that the impact of working capital on the profitability for those banks. 2. But for the impact of cash balances were negative (negative relationship), whenever the more cash the less profit. 3. For securities portfolio there was positively impact (positive relationship), the more size of portfolio of commercial papers the higher profitability was findings which supported the existence of this effect on both cash balances and securities portfolio. 4. With regard to the impact of discounted commercial paper portfolio results were supported there is no impact on the profitability of the bank portfolio. 5. With regard to the impact of working capital, cash balances, portfolio discounted commercial paper and commercial paper portfolio to market value, the results were supports that there is no statistically significant effect of total factors collectively and individually on the market value. IV: Recommendations:In the light of previous findings of the study to a set of recommendations, namely: 1. Working to improve the ability of management working capital in the Jordanian commercial banks by increasing the interest level of liquidity, portfolio commercial paper discounted and securities portfolio. 2. Increasing attention to the preparation of financial statements, as well as to increase the degree of flexibility and adjustability of cash flow planning to raise the efficiency of current planning in working capital. 3. Building investment policies in working capital management and funding sources to enhance the ability of banks, and not to rely on funding from short-term sources that affect the level of departments and profitability. 4. Developing an integrated program to create awareness administrative and accounting, in order to develop and improve the efficiency of working capital management to increase the attention of senior management. 5. Development of control systems and supervision of employees manages a portfolio of securities, commercial paper discounted, and supply departments of commercial banks qualified human elements and capable of performing the work to the fullest. COPY RIGHT 2013 Institute of Interdisciplinary Business Research 212

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