The Impact of Financial Risks on Market Value of Jordanian Islamic Banks: The Moderating Role of Financial Stability

Abstract

The current study aimed to show the impact of financial risks (capital risks, credit risks, liquidity risks and operational risks) on the market value of Jordanian Islamic banks in view of the modified role of financial stability. The current study adopted the causal-effect method in order to identify the modified role of financial stability on the relationship between financial risks and their variables and the market value of Jordanian Islamic banks. By using the E-Views program to statistically process the study data, where both descriptive statistics and Pearson correlation coefficient between variables were used, leading to the multiple regression test to test the study hypotheses. The study came to the conclusion that there is a statistically significant relationship between the market value of Jordanian Islamic banks and the financial risks , where it was found that the relationship is strong and has a reverse direction, and it was also found that there is no moderating effect of financial stability on the relationship between the market value of Jordanian Islamic banks and the financial risks, as it was found that the relationship is strong and in a reverse direction.

The study recommends the need to develop an effective policy in granting credit that achieves a balance between increasing the bank’s profits and reducing the risks of non-payment in light of the economic conditions in the Kingdom.

Keywords: Financial Risks, Financial Stability, Credit Risks, Market Value, Jordanian Islamic Banks .