The impact of banking financial leverage on firm’s performance: The moderating role of artificial intelligence

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Abstract

Exploring the intricate and multifaceted dynamics between financial leverage (LEV), artificial intelligence (AI), and firm performance, this research paper delves into the complex relationship highlighted in the existing literature. To enhance comprehension, the study seeks to investigate the moderating influence of AI on this relationship, aiming to provide insights into how businesses can strategically optimize the interplay of leverage and AI to attain optimal performance levels. The study community consisted of all 13 Jordanian commercial banks listed on the Amman Stock Exchange (ASE) for the period from 2012 to 2021. The study sample consisted of 130 observations collected from the annual reports of the study sample. The method adopted in the study involved conducting a regression analysis to test the hypotheses and determine the strength and direction of the relationship between the variables. The main finding of the study was that there is a negative relationship between financial leverage and firm performance, as indicated by a negative coefficient for return on assets (ROA). Additionally, the study found that the use of AI has a positive moderating effect on the relationship between financial leverage and firm performance, as indicated by a positive coefficient for return on equity (ROE). The generalizability of the findings to other demographics or situations may be constrained by the study sample’s narrow focus, which may not necessarily be indicative of other types of businesses or industries.

Keywords: Financial Leverage, Firm Performance, Artificial Intelligence, Moderation, Jordanian Commercial Banks

Authors’ individual contribution: Conceptualization — O.S.S. and Z.A.-H.; Methodology — O.S.S.; Software — O.S.S.; Validation — O.S.S. and Z.A.-H.; Formal Analysis — O.S.S.; Investigation — Z.A.-H.; Resources — O.S.S. and Z.A.-H.; Data Curation — O.S.S.; Writing — Original Draft — O.S.S.; Writing — Review & Editing — O.S.S. and Z.A.-H.; Visualization — O.S.S.; Supervision — O.S.S.; Project Administration — O.S.S. and Z.A.-H.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: C21, C88, G21, G30, G32

Received: 12.11.2023
Accepted: 12.06.2024
Published online: 17.06.2024

How to cite this paper: Shaban, O. S., & Al Hawatmah, Z. (2024). The impact of banking financial leverage on firm’s performance: The moderating role of artificial intelligence. Risk Governance and Control: Financial Markets & Institutions, 14(2), 99–106. https://doi.org/10.22495/rgcv14i2p10