Explain the Application of the Theory of Constraint(s) Model to Evaluate the Capital Adequacy Ratio in Banks

Theory of Constraint(s) is one of the decision-making techniques in strategic management accounting and one of the new theories of performance appraisal that thinks about the growth strategy with a systematic approach to the firm and in line with the cost management strategy. The use of Theory of Constraint(s) concepts in the banking industry is a novel topic and therefore explaining the capital adequacy ratio through the accounting model of system performance, can lead to systemic thinking in banks. In this study, the key variables of 17 banks in the period 1397-1387 were calculated based on the common (traditional) approach and also the theory of constraints approach. Statistical models were also tested using 11EViews software. The research findings indicate that the banking system can use the rich concepts of constraint theory in the performance appraisal process as well as its operational and strategic decisions and use it to improve the capital adequacy ratio.