Capital Structure and Firm’s Performance of Jordanian Manufacturing Sector

Abstract

This study aimed to identify the effect of capital structure on the performance of the industrial Jordanian Companies listed on Amman Stock Exchange during the period between: 2005 to 2013, whereas this study was applied on all Jordanian industrial companies listed at ASE and which amount 72 companies as in December, 2013. In order to achieve the objective of the current study the unbalanced cross sectional pooled Ordinary Least Square (OLS) regression model was used. The results of this study showed that there was statistically significant inverse effect of capital structure, expressed by long-term debt to capital ratio, total debt to capital ratio and total debt to total assets ratio, on the performance of the Jordanian industrial companies listed at ASE expressed by Return on asset ratio (ROA), which means that the most profitable companies rely less on borrowing to finance their cash needs, and this result is supported by Pecking-order theory which states that the relationship between borrowing and profitability of the company is an inverse relationship so that the most profitable companies are less dependent on profits to finance their needs.