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Arab Journal of Administration المجلة العربية للإدارة

Abstract

This research aims to determine the impacts and the direction of the correlation between the risk adjusted performance measures derived from the risks of economic capital (net accounting profit/ economic capital), derived from the regulatory capital (net accounting profit/ regulatory capital), and the non-risk adjusted performance measures derived from the accounting capital (net accounting profits/ accounting capital) as independent variables and traditional risk adjusted performance measures based on market data in the form of annual returns for stocks, which reflects the overall risk, and risk- adjusted performance measures based on accounting data in the form of an indicator of the quality of the loan portfolio, which reflects the credit risks (non-performing loans / total loan portfolio) as dependent variables. The results of the statistical analysis model indicated to a positive impact of risk- adjusted performance measure derived from the economic capital on the dependent variable in the form of the annual returns on stocks. This is meant that an improvement in risk–adjusted performance measure derived from economic capital result in improving in the annual returns for stocks (positive relationship), while There is no significant impacts of the non- risk adjusted performance derived from the accounting capital on annual returns for stocks. While the results of the second statistical regression model indicated to the lack of a significant effects of adjusted and non- adjusted measures derived from economic capital and accounting capital on the credit quality measure as a dependent variable. To answer questions of the search, results indicated that risk –adjusted performance measures derived from the economic capital is superior to the non –risk adjusted performance measure derived from the accounting capital with respect to the impacts on the performance measure based on of market data as the dependent variable. So, the researcher recommended that banks should develop risk- adjusted performance measure based on the economic capital and disclose it beside the traditional performance measure due to its impacts not only on the performance measure based on of market data during the current period as the dependent variable but also on the performance measure based on of market data during the next period, banks should rely on the concept of the economic capital for managing bank capital. The researcher also recommended preparing future studies to improve the predictive ability of the models used in the study by introducing additional variables and increase the number of variables to improve the performance of key variables under study through interaction with each other.

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