Determinants of capital structure: evidence from Jordanian service companies

  • Received March 15, 2020;
    Accepted June 23, 2020;
    Published July 3, 2020
  • Author(s)
  • DOI
  • Article Info
    Volume 17 2020, Issue #2, pp. 364-376
  • Cited by
    8 articles

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License

This paper examines capital structure determinants for service companies in Jordan between 2014 and 2018. Secondary data from 45 companies were analyzed using the panel regression approach. The results show that the independent variables, suggested as capital structure determinants, have an effect on the debt ratio made by the service companies. Size and non-debt tax shield have a positive significant effect on the debt ratio, while profitability and business risk have a negative significant impact on the debt ratio. In general, the findings support the notion that the trade-off, bankruptcy cost, agency cost and pecking order theories are crucial in explaining the capital structure of Jordanian service companies except for non-debt tax shields and tangibility factors. Jordanian service companies do not use fixed assets as collateral or companies with higher collateral value tend to borrow less debt. Although the coefficient of institutional investors is statistically insignificant, it is still negative and economically significant. This paper concludes that size, profitability, business risk, non-debt tax shields and institutional ownership factors are fundamental in terms of shaping the capital structure in Jordanian service companies.

view full abstract hide full abstract
    • Table 1. Characteristics of Jordanian service companies
    • Table 2. LLC test results
    • Table 3. Correlation coefficients between independent variables
    • Table 4. The effect of service company characteristics on the capital structure
    • Conceptualization
      Omar K. Gharaibeh
    • Data curation
      Omar K. Gharaibeh
    • Formal Analysis
      Omar K. Gharaibeh
    • Funding acquisition
      Omar K. Gharaibeh
    • Investigation
      Omar K. Gharaibeh, Saqer AL-Tahat
    • Methodology
      Omar K. Gharaibeh
    • Project administration
      Omar K. Gharaibeh
    • Resources
      Omar K. Gharaibeh
    • Software
      Omar K. Gharaibeh
    • Supervision
      Omar K. Gharaibeh, Saqer AL-Tahat
    • Validation
      Omar K. Gharaibeh, Saqer AL-Tahat
    • Visualization
      Omar K. Gharaibeh, Saqer AL-Tahat
    • Writing – original draft
      Omar K. Gharaibeh
    • Writing – review & editing
      Omar K. Gharaibeh