The connection between Capital structure and performance: Does firm size matter?


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The purpose of this paper is to empirically investigate the impact of capital structure decisions on firm performance in Jordan (2010–2018), as well as the extent to which firm size matters in the capital structure-performance relationship. The dependent variable was market share. The main independent variables were the book value of total debt ratios, and firm-specific factors such as firm size, firm age, firm growth, and market-to-book value of equity served as control variables. This study used a quantitative research method using panel data analysis of 830 firm-year observations. Random effects model was employed to analyze the capital structure-performance nexus. To infer correctly, the main analysis was re-examined using the generalized method of moment estimator to overcome possible endogeneity concerns. After controlling for endogeneity and firm heterogeneity, this study finds that the book value of capital structure has a significantly positive relation to a firm’s market share. Hence, every one unit increase in the book value of total debt ratios will increase market share by 4.77%. The firm size, sales growth, and market-to-book value of equity had a significantly positive association with market share. Hence, every one unit increase in firm size, growth and market-to-book equity ratio will increase a firm’s market share by 8.84%, 2.06%, and 2.15%, respectively, but surprisingly, firm age did not meaningfully contribute to operating performance. Another important finding was that the strength of a positive relationship between the book value of total debt ratios and market share depends on the size of a firm and is mostly higher for larger-sized firms. Hence, every one unit increased in the book value of total debt ratios for large firms will increase market share by 10.58%.

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    • Table 1. Variable definitions
    • Table 2. Descriptive statistics and normality tests
    • Table 3. Correlation analysis and multicollinearity test
    • Table 4. Coefficient estimates for the association between capital structure and market share
    • Table 5. Relationship between Market Lev and operating performance
    • Table 6. Impact of capital structure on performance: Two-step GMM estimation
    • Table 7. Regression results (capital structure-performance) relying on firm size effects
    • Conceptualization
      Marwan Mansour, Mo’taz Kamel Al Zobi
    • Formal Analysis
      Marwan Mansour, Luay Daoud
    • Methodology
      Marwan Mansour, Luay Daoud
    • Writing – original draft
      Marwan Mansour
    • Funding acquisition
      Mo’taz Kamel Al Zobi, Luay Daoud
    • Software
      Mo’taz Kamel Al Zobi
    • Validation
      Mo’taz Kamel Al Zobi, Ahmad Al-Naimi
    • Writing – review & editing
      Mo’taz Kamel Al Zobi, Ahmad Al-Naimi, Luay Daoud
    • Data curation
      Ahmad Al-Naimi
    • Project administration
      Ahmad Al-Naimi
    • Resources
      Ahmad Al-Naimi
    • Supervision
      Ahmad Al-Naimi
    • Investigation
      Luay Daoud