The Relationship between Capital Structure and Ownership Structure: New Evidence from Jordanian Panel Data

Abstract

The study investigates the comparatively under-researched relationship between ownership structure and capital structure in an emerging market. It is also one of the first studies to apply both single and reduced form equation methods using a panel data approach. Furthermore, this is the first study of the interaction between institutional ownership and capital structure in Jordan where there are differences, as regards institutional and financial structures, relative to those in developed markets. The results demonstrate that Jordanian firms follow the same determinants of capital structure as occur in developed markets, namely: profitability, firm size, growth rate, market to book ratio, asset structure, and liquidity. In addition, institutional ownership structure is found to be determined by: assets structure, business risk, growth opportunities, and firm size. Finally, the results reveal that assets tangibility, firm size, growth opportunities and business risk are considered to be joint determinants of ownership structure and capital structure.

Keywords: capital structure, Ownership structure, institutional investors, panel data, simultaneous relationship