Determinants of profitability in Jordanian services companies

  • Received January 25, 2020;
    Accepted March 24, 2020;
    Published April 1, 2020
  • Author(s)
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  • Article Info
    Volume 17 2020, Issue #1, pp. 277-290
  • Cited by
    15 articles

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

Due to the uniqueness of the services sector in terms of its characteristics and profitability, as well as the lack of studies on this sector, this study is considered to be the first to improve the knowledge of the key factors that play an important role in the profitability of the Jordanian services sector. This study investigates the effect of financial characteristics and capital structure on the profitability of all 46 services companies listed on the Amman Stock Exchange over the period 2014–2018. This study applies fixed and random effects models to panel data variables, namely, size, tangible assets, growth, business risk, debt to equity ratio and debt to assets ratio as independent variables. At the same time, profitability was measured by operating profits (earnings before interest and tax divided by total assets), return on assets (ROA), and return on equity (ROE), which acted as the dependent variables. This study reveals the first evidence that the debt to assets ratio has a negative and significant impact on the profitability of services companies in Jordan. In line with the pecking order theory, this finding suggests that more profitable services companies tend to prioritize the use of retained earnings in financing business activities rather than in financing debt. This study shows that profitability is significantly and positively affected by size and business risk, while ROA is negatively affected by business risk. It also shows that tangible assets have a negative and significant effect on profitability, while growth has a positive and significant effect on operating profits.

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    • Table 1. Description of the variables
    • Table 2. Descriptive statistics of Jordanian services companies
    • Table 3. Results of unit root test based on LLC test
    • Table 4. Correlation coefficients between the variables
    • Table 5. Ordinary least squares regression results
    • Table 6. Ordinary least squares regression results
    • Table 7. Ordinary least squares regression results
    • Conceptualization
      Omar K. Gharaibeh
    • Data curation
      Omar K. Gharaibeh
    • Formal Analysis
      Omar K. Gharaibeh
    • Funding acquisition
      Omar K. Gharaibeh
    • Investigation
      Omar K. Gharaibeh, Marie H. Bani Khaled
    • Methodology
      Omar K. Gharaibeh
    • Project administration
      Omar K. Gharaibeh
    • Resources
      Omar K. Gharaibeh
    • Software
      Omar K. Gharaibeh
    • Supervision
      Omar K. Gharaibeh, Marie H. Bani Khaled
    • Validation
      Omar K. Gharaibeh, Marie H. Bani Khaled
    • Visualization
      Omar K. Gharaibeh, Marie H. Bani Khaled
    • Writing – original draft
      Omar K. Gharaibeh
    • Writing – review & editing
      Omar K. Gharaibeh