“Capital expenditure, tax avoidance and bank performance: Evidence from Jordanian banks”

Tax avoidance and capital expenditure are critical financial strategies employed by banks to enhance profitability. Understanding their impact on bank financial performance is essential for policymakers and bank managers seeking to optimize financial strategies. This study is aimed to investigate the influence of tax avoidance (TAV) and capital expenditure on the financial performance of Jordanian banks, while exploring the moderating effect of firm size. Using regression analysis, the relationships between tax avoidance, capital expenditure, bank size, and bank financial performance were investigated. Financial data from Jordanian banks were utilized over a specified period. The study results refer that tax avoidance has a positive correlation with ROA (the correlation = 31.7%) and ROE (the correlation = 30.2%). The results reveal that tax avoidance significantly impacts bank financial performance, with banks employing tax avoidance strategies exhibiting higher returns on assets and equity. However, capital expenditure does not demonstrate a significant association with bank financial performance. Additionally, firm size does not moderate the link between TAV, capital expenditure, and bank financial performance. The non-significant impact of capital expenditure underscores the need for banks to explore alternative avenues for improving financial performance. These findings provide a valuable insight for policymakers and bank managers in devising effective financial strategies to optimize bank performance in the Jordanian context.


INTRODUCTION
The dynamics of capital expenditure, tax planning strategies, and their implications on the banking institutions performance have garnered significant attention in contemporary financial research.Amidst the intricate interplay of regulatory frameworks, economic conditions, and organizational objectives, understanding the nexus between these factors becomes imperative for stakeholders ranging from policymakers to investors.This study embarks on a comprehensive investigation into this intricate relationship in the context of Jordanian banks.
Jordan, like many emerging economies, presents a unique landscape for examining the interconnections between capital expenditure decisions, tax avoidance practices, and their ramifications on bank performance.The banking sector, as a pivotal pillar of the economy, facilitates economic growth and shapes the financial landscape.Consequently, exploring the determinants and consequences of capital expenditure and TAV in this sector holds paramount significance for both academic inquiry and practical applications.Despite the growing body of literature on the relationship between capital expenditure, tax avoidance, and bank performance in various contexts, there remains a gap in understanding how these factors specifically interact within the unique regulatory and economic environment of Jordanian banks.Specifically, there is limited empirical evidence on the extent to which capital expenditure decisions are influenced by tax avoidance strategies and how these decisions ultimately impact the overall financial performance of banks in Jordan.Furthermore, existing studies often overlook the potential moderating effects of regulatory frameworks, market competition, and economic conditions on this relationship.Therefore, this study addressed these gaps by investigating the interplay between capital expenditure, tax avoidance, and bank performance in Jordan, providing insights into the effectiveness of tax planning strategies and their implications for financial stability and regulatory compliance in the Jordanian banking sector.
The study aims to shed light on several key inquiries.Firstly, it seeks to discern the drivers behind the capital investment decisions of banks operating in Jordan, considering factors such as regulatory environment, market competition, and growth opportunities.Secondly, it endeavors to elucidate the strategies employed by these banks in managing their tax liabilities, exploring avenues of tax optimization and potential implications on financial performance.Lastly, the study endeavors to assess the link between capital expenditure, tax avoidance, and various performance indicators, including profitability, liquidity, and solvency.The research goal is to investigate the relationship between capital expenditure, tax avoidance strategies, and the overall performance of banks in Jordan.Specifically, the study seeks to analyze how capital expenditure impacts the financial health and operational efficiency of Jordanian banks, examine the extent and nature of tax avoidance practices within these banks, assess how these tax avoidance strategies influence bank performance metrics such as profitability, liquidity, and risk management, and provide evidence-based insights and recommendations for policymakers, regulators, and banking institutions to enhance financial stability and transparency in the Jordanian banking sector.
By delineating the contours of this scientific problem, this study sets out to contribute to the existing body of knowledge in financial economics, while also providing practical insights for stakeholders in the Jordanian banking sector.Through rigorous empirical analysis and robust methodology, the study endeavors to offer evidence-based guidance for policymakers, regulators, and banking practitioners, facilitating informed decision-making in a dynamic and complex financial landscape.This study aims to examine the interconnections between capital expenditure decisions, tax avoidance strategies, and bank performance in the context of Jordanian banks.Through empirical analysis and rigorous methodology, insights are provided into the consequences and determinants of capital allocation and tax planning in shaping the financial landscape of Jordanian banking institutions.

LITERATURE REVIEW AND HYPOTHESES
The hypotheses are: H 01 : TAV does not have a statistically significant impact on bank financial performance.
H 02 : Capital expenditure does not have a statistically significant effect on bank financial performance.
H 03 : Bank size does not influence the effect of TAV and capital expenditure on bank performance.

METHOD
The study will employ a mixed methods approach, combining quantitative and qualitative techniques to comprehensively examine the relationship between capital expenditure, tax avoidance, and bank performance in Jordanian banks.Financial statements and annual reports of Jordanian banks for the last 10 years will be collected from publicly available sources such as the banks' official websites.Data on capital expenditures, tax payments, and key performance indicators (KPIs) such as return on assets (ROA), return on equity (ROE), net interest margin (NIM), and non-performing loan (NPL) ratios will be extracted from these reports.
Summary statistics will be computed to provide an overview of the key variables, including mean, median, standard deviation, and range.Pearson correlation coefficients will be calculated to determine the relationships between capital expenditure, tax avoidance, and various bank performance metrics.In addition, multiple regression models will be used to examine the impact of capital expenditure and tax avoidance on bank performance.Control variables such as bank size, market share, and economic conditions will be included to ensure robustness.
Here, some of the most common regression models will be described.The study models are: where TAV = Tax Avoidance (tax expense over income before tax), Capex = capital expenditure, which is equal to cash flow form investment activities over total assets, ROA is return on assets, Sizelogarithm for total assets, ROE is return on equity, which equals net income over average total assets.These represent a selection of regression models frequently employed in statistical and data analysis.The selection of the appropriate model hinges on factors such as the data characteristics, the research inquiry, and the underlying assumptions.Evaluating model adequacy, interpreting coefficients, and conducting diagnostics are crucial steps to verify that the chosen regression model effectively captures the interplay between variables and generates dependable predictions.

RESULTS
The findings include the mean, standard deviation, kurtosis and skewness for four pivotal variables within the dataset.From Table 2, the Mean for TAV is 0.6894, indicating that, on average, Jordanian banks have a relatively high level of tax avoidance, where the median TAV (0.696) is very close to the mean, where the negative skewness (-0.633) means there are more banks with higher levels of TAV.Lastly, the positive kurtosis (15.752) suggests some outliers with extremely high levels of TAV.The hypothesis under consideration is: TAV does not have a statistically significant impact on bank financial performance.To assess this hypothesis, let's examine the coefficients and statistical significance of the variables in the regression model: The constant term in the model is 0.001 with a standard error of 0.010.The p-value associated with the constant is 0.944.The coefficient for TAV is 0.016 with a standard error of 0.004 and a t-value of 4.282.The associated p-value is 0.00, indicating that tax avoidance has a statistically significant impact on bank financial performance at conventional significance levels (assuming α = 0.05).Therefore, the null hypothesis (H01) will not be accepted, and one can conclude that TAV does have a statistically significant impact on bank financial performance.In addition, the coefficient for Capex is 0.011, with a standard error of 0.010 and a t-value of 1.199.The associated p-value is 0.232, indicating that Capex does not have a statistically significant impact on bank financial performance at conventional significance levels.The coefficient for Size is -0.086 with a standard error of 0.001 and a t-value of -0.084.The associated p-value is 0.933, indicating that Size does not have a statistically significant impact on bank financial performance at conventional significance levels.The R-squared value (R2) of 0.109 indicates that approximately 10.9% of the variation in the dependent variable (ROA) is explained by the independent variables in the model.
The adjusted R-squared (Adj R2) is 0.092, indicating that the model's explanatory power remains similar after adjusting for the number of predictors.The F-statistic of 6.216 suggests that the overall model is statistically significant at conventional significance levels.The variance inflation factor (VIF) of 1.067 for all variables suggests no issue of multicollinearity.The constant term in the model is -0.041 with a standard error of 0.072 and a t-value of -0.569.The associated p-value is 0.570, indicating that the constant is not statistically significant.The coefficient for TAV is 0.106 with a standard error of 0.027 and a t-value of 3.975.The associated p-value is 0.00, suggesting that tax avoidance has a statistically significant impact on bank financial performance at conventional significance levels.Thus, H02 is rejected, indicating that capital expenditure does have a statistically significant impact on bank financial performance.The coefficient for Capex is 0.025 with a standard error of 0.068 and a t-value of 0.367.The associated pvalue is 0.714, indicating that Capex does not have a statistically significant impact on bank financial performance at conventional significance levels.Therefore, H02 cannot be rejected.The associated pvalue is 0.497, indicating that Size does not have a statistically significant effect on bank performance at conventional significance levels.
The (R2) of 0.096 indicates that 9.6% and the adjusted R-squared (Adj R2) is 0.078, indicating that the model's explanatory power remains similar after adjusting for the number of predictors.Lastly, the variance inflation factor (VIF) of 1.067 for all variables suggests no issue of multicollinearity, the Durbin-Watson statistic of 0.876 indicates that there might be some autocorrelation present in the residuals.
In summary, based on the results of Model 1, the null hypothesis (H01) is rejected, and it can be concluded that tax avoidance has a statisti-cally significant impact on bank financial performance.However, capital expenditure and size do not exhibit statistically significant effects on bank financial performance in this model.Based on the results of Model 2, H02 cannot be rejected, indicating that capital expenditure does not have a statistically significant impact on bank financial performance.Based on the results, H03 cannot be rejected, indicating that firm size does not significantly influence the impact of tax avoidance and capital expenditure on bank financial performance.

DISCUSSION
The findings of this study shed light on the intricate relationship between tax avoidance, capital expenditure, firm size, and bank financial performance in the context of Jordanian banks.A thorough analysis of the regression models revealed several noteworthy insights.In addition, the findings of this study provide significant insights into the relationships between tax avoidance, capital expenditure, firm size, and bank financial performance in Jordanian banks.The regression analysis yielded several noteworthy results.
Firstly, the results indicate that tax avoidance has a statistically significant impact on bank financial performance, as evidenced by the positive coefficient and significant p-value in both models.This finding suggests that Jordanian banks engaging in tax avoidance strategies tend to exhibit higher returns on assets and equity.However, contrary to expectations, capital expenditure was not found to have a statistically significant impact on bank financial performance in both models.In contrast, the study found that capital expenditure does not have a statistically significant impact on bank financial performance.This finding diverges from some prior studies (e.g., Barth et

CONCLUSION
The primary objective of this study was to examine the impact of tax avoidance and capital expenditure on the financial performance of Jordanian banks, with a specific focus on exploring the moderating effect of firm size.Through regression analysis, the study investigated the relationships between these variables and their implications for bank profitability.The findings of the study reveal several key insights.Firstly, tax avoidance was found to have a statistically significant impact on bank financial performance, with banks engaging in tax avoidance strategies exhibiting higher returns on assets and equity.However, capital expenditure did not demonstrate a significant association with bank financial performance.Additionally, firm size was not found to moderate the relationship between tax avoidance, capital expenditure, and bank financial performance.
These findings highlight the importance of tax planning strategies for improving bank profitability in Jordan.Policymakers and bank managers should prioritize effective tax management to optimize financial outcomes.The lack of significant impact from capital expenditure suggests that banks may need to explore alternative strategies for enhancing performance.Future research should delve deeper into the specific mechanisms driving these relationships, consider additional contextual factors, and employ longitudinal approaches to assess the long-term sustainability of financial strategies.
From these results, it can be concluded that tax avoidance plays a crucial role in shaping the financial performance of Jordanian banks.Strategies aimed at minimizing tax liabilities appear to positively influence bank profitability.However, the lack of significance regarding capital expenditure suggests that other factors may be more influential in determining bank financial performance in the Jordanian context.Moreover, the non-moderating effect of firm size implies that the impact of tax avoidance and capital expenditure on bank financial performance remains consistent across banks of varying sizes.
In summary, this study underscores the importance of tax planning strategies for enhancing bank financial performance in Jordan.Policymakers and bank managers should carefully consider the implications of tax avoidance strategies and explore alternative avenues for improving profitability.Future research could delve deeper into the underlying mechanisms driving the observed relationships and investigate additional factors that may influence bank performance in the region.

Investment
Management and Financial Innovations, Volume 21, Issue 3, 2024 http://dx.doi.org/10.21511/imfi.21(3).2024.11 Higgins et al., 2013).The work of Thanjunpong and Awirothananon, (2019) elucidated various tax optimization techniques employed by banks, including income shifting, transfer pricing, and the use of tax havens.Moreover, studies such as Chukwudi et al. (2020) have examined the tax planning influence on financial performance, revealing mixed empirical evidence regarding its effects on profitability and shareholder value.
(Bui et al., 2020;tionship between capital expenditure, TAV, and bank performance has been a subject of extensive inquiry in financial literature.Alodatet al. (2023), Shubita (2023), and Rezaei and Ghanaeenejad (2014) have explored various dimensions of this nexus, aiming to understand the drivers, mechanisms, and implications for banking institutions.Drawing on a Furthermore, the literature underscores the interconnectedness between capital expenditure decisions and tax planning strategies in shaping overall bank performance (Sriyono & Andesto, 2022; Mansour et al., 2023).Schwab et al. (2022) demonstrate that banks adopting aggressive tax planning tactics tend to allocate more capital towards growth-oriented investments, aiming to enhance long-term profitability and shareholder value.Conversely, a study by Beatty et al. (1995) cautions against excessive reliance on tax avoidance measures, emphasizing the importance of sustainable capital investment practices for maintaining financial stability and resilience.Several studies have examined the capital expenditure decision determinants in the banking sector (Chen et al., 2014; Han et al., 2014).For instance, Higgins et al. (2013) conducted aIn parallel, research on tax planning strategies in the banking industry has underscored the importance of minimizing tax liabilities while complying with regulatory requirements(Bui et al., 2020;

Table 1 .
Descriptive results For the Size variable, the mean is 9.375, the standard deviation (0.404) indicates variability in the sizes of the banks in the sample.Positive skewness (1.050) indicates that the distribution of size is skewed to the right, with more banks having smaller sizes.Mean ROA (0.0108) indicates that, on average, the banks in the sample have a relatively low return on assets.

Table 4 .
First model results

Table 5 .
Second model results