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


The Relationship Between the Return on Equity (ROE) and the Capital Structure of the Jordanian Public Shareholding Industrial Companies

Author(s): Abdulnafea Al-Zararee, Jafer Al-Sawalhah, Abeer Samara

This study aims at verifying the impact of the capital structure on the profitability in Jordanian industrial joint-stock firms, and how these companies managed their capitals through the period from 2006 to 2015. The methodology of this study relied on the descriptive approach to analyze and classify the available data using the multi regression analysis. The sample of the study included the Dar Al Dawa Development and Investment Company, and the Hayat Pharmaceutical Industries Company. The results of this study show that there are statistically significant effects at the significance level ( 0.05. = α ≤ 0.0 ) of the capital structure (debt) on the return on equity (ROE) in the Jordanian industrial shareholding companies. Descriptive statistics indicate that the financial leverage (FL) constitutes about 51% of the capital structure in the aforementioned companies, with the short-term financial leverage being the largest component of the financial leverage (FL). It is worth noting that the leverage ratio was almost constant during the study period (the standard deviation ratio was 0,113). As shown by the study results, the rate of interpretation of the independent variables on the dependent variable was 85% (Adjusted R2). It has been also noticed that the relationship between the capital structure) indebtedness (and the profitability (ROE) is positive, i.e. there is a statistical significance of financial leverage (FL) on the profitability index in the studied companies. Likewise, there is a statistically significant effect of other independent variables (except for the asset turnover ratio) on the profitability index.

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