The Relationship between Capital Structure and Firm Performance: Evidence from Jordan

Khalaf Al-Taani

doi:doi:10.11648/j.jfa.20130103.11

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The Relationship between Capital Structure and Firm Performance: Evidence from Jordan

Khalaf Al-Taani

Published in Journal of Finance and Accounting (Volume 1, Issue 3)

Received: 17 September 2013 Published: 20 October 2013

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Abstract

The purpose of this study is to empirically investigate the relationship between capital structure and firm performance across different industries using a sample of Jordanian manufacturing firms in Jordan. The annual financial statements of 45 manufacturing companies listed on the Amman Stock Exchange were used for this study which covers a period of five (5) years from 2005-2009. Multiple regression analysis was applied on performance indicators such as Return on Asset (ROA) and Profit Margin (PM) as well as Short-term debt to Total assets (STDTA), Long term debt to Total assets (LTDTA) and Total debt to Equity (TDE) as capital structure variables. The results show that there is a negative and insignificant relationship between STDTA and LTDTA, and ROA and PM; while TDE is positively related with ROA and negatively related with PM. STDTA is significant using ROA while LTDTA is significant using PM. The study concludes that statistically, capital structure is not a major determinant of firm performance. It recommends that managers of manufacturing companies should exercise caution while choosing the amount of debt to use in their capital structure as it affects their performance negatively.

Published in	Journal of Finance and Accounting (Volume 1, Issue 3)
DOI	10.11648/j.jfa.20130103.11
Page(s)	41-45
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2013. Published by Science Publishing Group

Keywords

Capital Structure, Firm Performance, Amman Stock Exchange, Jordan

References

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APA Style

Khalaf Al-Taani. (2013). The Relationship between Capital Structure and Firm Performance: Evidence from Jordan. Journal of Finance and Accounting, 1(3), 41-45. https://doi.org/10.11648/j.jfa.20130103.11

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ACS Style

Khalaf Al-Taani. The Relationship between Capital Structure and Firm Performance: Evidence from Jordan. J. Finance Account. 2013, 1(3), 41-45. doi: 10.11648/j.jfa.20130103.11

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AMA Style

Khalaf Al-Taani. The Relationship between Capital Structure and Firm Performance: Evidence from Jordan. J Finance Account. 2013;1(3):41-45. doi: 10.11648/j.jfa.20130103.11

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@article{10.11648/j.jfa.20130103.11,
  author = {Khalaf Al-Taani},
  title = {The Relationship between Capital Structure and Firm Performance: Evidence from Jordan},
  journal = {Journal of Finance and Accounting},
  volume = {1},
  number = {3},
  pages = {41-45},
  doi = {10.11648/j.jfa.20130103.11},
  url = {https://doi.org/10.11648/j.jfa.20130103.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20130103.11},
  abstract = {The purpose of this study is to empirically investigate the relationship between capital structure and firm performance across different industries using a sample of Jordanian manufacturing firms in Jordan. The annual financial statements of 45 manufacturing companies listed on the Amman Stock Exchange were used for this study which covers a period of five (5) years from 2005-2009. Multiple regression analysis was applied on performance indicators such as Return on Asset (ROA) and Profit Margin (PM) as well as Short-term debt to Total assets (STDTA), Long term debt to Total assets (LTDTA) and Total debt to Equity (TDE) as capital structure variables. The results show that there is a negative and insignificant relationship between STDTA and LTDTA, and ROA and PM; while TDE is positively related with ROA and negatively related with PM. STDTA is significant using ROA while LTDTA is significant using PM. The study concludes that statistically, capital structure is not a major determinant of firm performance. It recommends that managers of manufacturing companies should exercise caution while choosing the amount of debt to use in their capital structure as it affects their performance negatively.},
 year = {2013}
}

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TY  - JOUR
T1  - The Relationship between Capital Structure and Firm Performance: Evidence from Jordan
AU  - Khalaf Al-Taani
Y1  - 2013/10/20
PY  - 2013
N1  - https://doi.org/10.11648/j.jfa.20130103.11
DO  - 10.11648/j.jfa.20130103.11
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 41
EP  - 45
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20130103.11
AB  - The purpose of this study is to empirically investigate the relationship between capital structure and firm performance across different industries using a sample of Jordanian manufacturing firms in Jordan. The annual financial statements of 45 manufacturing companies listed on the Amman Stock Exchange were used for this study which covers a period of five (5) years from 2005-2009. Multiple regression analysis was applied on performance indicators such as Return on Asset (ROA) and Profit Margin (PM) as well as Short-term debt to Total assets (STDTA), Long term debt to Total assets (LTDTA) and Total debt to Equity (TDE) as capital structure variables. The results show that there is a negative and insignificant relationship between STDTA and LTDTA, and ROA and PM; while TDE is positively related with ROA and negatively related with PM. STDTA is significant using ROA while LTDTA is significant using PM. The study concludes that statistically, capital structure is not a major determinant of firm performance. It recommends that managers of manufacturing companies should exercise caution while choosing the amount of debt to use in their capital structure as it affects their performance negatively.
VL  - 1
IS  - 3
ER  -

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Author Information

Khalaf Al-Taani

Department of Banking & Finance, Faculty of Finance & Administrative Sciences, Irbid National University, Irbid – Jordan

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APA Style

Khalaf Al-Taani. (2013). The Relationship between Capital Structure and Firm Performance: Evidence from Jordan. Journal of Finance and Accounting, 1(3), 41-45. https://doi.org/10.11648/j.jfa.20130103.11

Copy | Download

ACS Style

Khalaf Al-Taani. The Relationship between Capital Structure and Firm Performance: Evidence from Jordan. J. Finance Account. 2013, 1(3), 41-45. doi: 10.11648/j.jfa.20130103.11

Copy | Download

AMA Style

Khalaf Al-Taani. The Relationship between Capital Structure and Firm Performance: Evidence from Jordan. J Finance Account. 2013;1(3):41-45. doi: 10.11648/j.jfa.20130103.11

Copy | Download

@article{10.11648/j.jfa.20130103.11,
  author = {Khalaf Al-Taani},
  title = {The Relationship between Capital Structure and Firm Performance: Evidence from Jordan},
  journal = {Journal of Finance and Accounting},
  volume = {1},
  number = {3},
  pages = {41-45},
  doi = {10.11648/j.jfa.20130103.11},
  url = {https://doi.org/10.11648/j.jfa.20130103.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20130103.11},
  abstract = {The purpose of this study is to empirically investigate the relationship between capital structure and firm performance across different industries using a sample of Jordanian manufacturing firms in Jordan. The annual financial statements of 45 manufacturing companies listed on the Amman Stock Exchange were used for this study which covers a period of five (5) years from 2005-2009. Multiple regression analysis was applied on performance indicators such as Return on Asset (ROA) and Profit Margin (PM) as well as Short-term debt to Total assets (STDTA), Long term debt to Total assets (LTDTA) and Total debt to Equity (TDE) as capital structure variables. The results show that there is a negative and insignificant relationship between STDTA and LTDTA, and ROA and PM; while TDE is positively related with ROA and negatively related with PM. STDTA is significant using ROA while LTDTA is significant using PM. The study concludes that statistically, capital structure is not a major determinant of firm performance. It recommends that managers of manufacturing companies should exercise caution while choosing the amount of debt to use in their capital structure as it affects their performance negatively.},
 year = {2013}
}

Copy | Download

TY  - JOUR
T1  - The Relationship between Capital Structure and Firm Performance: Evidence from Jordan
AU  - Khalaf Al-Taani
Y1  - 2013/10/20
PY  - 2013
N1  - https://doi.org/10.11648/j.jfa.20130103.11
DO  - 10.11648/j.jfa.20130103.11
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 41
EP  - 45
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20130103.11
AB  - The purpose of this study is to empirically investigate the relationship between capital structure and firm performance across different industries using a sample of Jordanian manufacturing firms in Jordan. The annual financial statements of 45 manufacturing companies listed on the Amman Stock Exchange were used for this study which covers a period of five (5) years from 2005-2009. Multiple regression analysis was applied on performance indicators such as Return on Asset (ROA) and Profit Margin (PM) as well as Short-term debt to Total assets (STDTA), Long term debt to Total assets (LTDTA) and Total debt to Equity (TDE) as capital structure variables. The results show that there is a negative and insignificant relationship between STDTA and LTDTA, and ROA and PM; while TDE is positively related with ROA and negatively related with PM. STDTA is significant using ROA while LTDTA is significant using PM. The study concludes that statistically, capital structure is not a major determinant of firm performance. It recommends that managers of manufacturing companies should exercise caution while choosing the amount of debt to use in their capital structure as it affects their performance negatively.
VL  - 1
IS  - 3
ER  -

Copy | Download