Capital Structure and Corporate Performance: Evidence from Jordan

Australasian Accounting Business & Finance Journal, Forthcoming

36 Pages Posted: 16 Sep 2014

See all articles by Rami Zeitun

Rami Zeitun

Western Sydney University - Department of Economics & Finance

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Date Written: September 14, 2014

Abstract

The central objective of this study is to investigate and examine the effect which capital structure has had on corporate performance using a panel data sample representing of 167 Jordanian companies during 1989-2003. This paper also examines the effect which external shocks have had on Jordanian corporate performance and industrial sectors. Our results showed that a firm’s capital structure had a significantly negative impact on the firm’s performance measures, in both the accounting and market’s measures. This result suggests that agency issues may lead to higher debt in the capital structure than there should be. We also found that the short-term debt to total assets (STDTA) level has a significantly positive effect on the market performance measure (Tobin’s Q), which could support Myers' (1977) argument that firms with a high STDTA have a high growth rate and high performance. The Gulf Crisis 1990-1991 was found to have a positive impact on Jordanian corporate performance as the Jordanian market was the only market that was open to Iraq. On the other hand, the outbreak of Intifadah in the West Bank and Gaza in September 2000 had a negative impact on corporate performance, as most of the Jordanian companies exported to the West Bank.

Keywords: corporate performance and failure, capital structure, Jordan

JEL Classification: G32, G33

Suggested Citation

Zeitun, Rami and Tian, Gary Gang, Capital Structure and Corporate Performance: Evidence from Jordan (September 14, 2014). Australasian Accounting Business & Finance Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2496174 or http://dx.doi.org/10.2139/ssrn.2496174

Rami Zeitun

Western Sydney University - Department of Economics & Finance ( email )

Sydney, NSW 1797
Australia

Gary Gang Tian (Contact Author)

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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