The Relation between Capital Structure, Governance, Ownership Structure, and Performance: Evidence from Jordanian Industrial Corporations

Abstract

This study utilizes panel data from 50 industrial corporations listed in the Amman Stock Exchange (ASE) during the period from 2012 to 2020 to investigate the relationship between capital structure, as measured by debt ratio, short-term debt to total assets, and long-term debt to total assets, governance as measured by the board of directors’ size, ownership structure, and corporation’s performance, measured by return on assets and earnings per share. A random effect regression analysis is conducted to test the study's hypotheses. The findings revealed that financial leverage has a negative association with firm performance. This negative relationship is observed with total leverage, short-term leverage, and long-term leverage. Additionally, the study found that both the board of directors’ size and foreign ownership have a negative relationship with firm performance. These results have significant implications for governments, practitioners, and management, especially in emerging markets like Jordan. In all the models used in this study, the Breusch and Pagan results reject the null hypothesis stating that there are significant differences across the years, the modified Wald test for heteroscedasticity rejects the null hypothesis of heteroscedasticity, and the Variance Inflation Factor (VIF) test indicates no impact of multi-collinearity.