Academy of Accounting and Financial Studies Journal (Print ISSN: 1096-3685; Online ISSN: 1528-2635)


Capital Structure Effect on Firms Value from Specific Industry Perspective: Jordanian Industrial Sector as A Case to Study

Author(s): Manal Sulieman Abughniem, Ahnaf Ali Alsmady, Mohammad Adnan Hilal Al Aishat, Omar Ikbal Tawfik

The paper aims at investigating the Accounting and Finance theories on the best way of financing the firms. On the one hand, the agency theory perspective conflicts with the aggregate of leverage in the firm’s capital structure (CS). While Modigliani and Millers' argued that debt is preferred in some circumstances. Therefore, the effect of equity and debt levels on a firm’s value at a specific Jordanian industrial market is our concern. The study sample includes 34 Jordanian Industrial firms during 2001-2015 listed in Amman Stock Exchange (ASE). The study used multiple stepwise regression models analysis. The study measures the firm value using Earning Per Share (EPS) as a dependent variable. Also, the debt divided by the total assets (DR) and the total liability ratio divided by total equity (DE) isa measurement of the external sources of CS. Furthermore, the total equity ratio divided by total assets (EA) is a measurement of the internal sources of CS. The result of the study indicated a negative effect on capital intensive measured by (DR) and (DE) on firm value in all models. Alternatively, the study found a positive impact on capital intensive measured by (EA) on firm value. Finally, the study established the positive effect of corporate characteristics sales growth, profitability and firms size on firm value in all models under the study. Higher debt is not preferred in Jordan's industrial sector, according to the study. Thus, internal resource in terms of capital intensive equity is better than other resources.

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