INFLUENCE OF CAPITAL STRUCTURE ON FIRM PERFORMANCE: EMPIRICAL EVIDENCE FROM JORDANIAN BANKING INDUSTRY

Abstract

This research examines the influence of capital structure on firm performance in the Jordanian context, data is obtained of 15 listed banks on Amman Stock Exchange (ASE) from 2002 to 2015. For this reason the Ordinary Least Squares method of multiple regression is applied in carrying out this analysis. The dependent variable for the research is both accounting and market performance measures, while the independent variable is capital structure measured by debt ratio. In addition to other controlled variables: size, growth opportunities, tangibility, risk, and dividend policy.

The main result reveals a significant positive influence of capital structure on banks performance, in general. This implies that profitable Jordanian banks depend more on debt as their main financing option with an average of Debt Ratio equals to about 86%, therefore, a support of Trade-Off theory evidence is provided.