Empirical Investigation of Symmetric and Asymmetric Target Adjustment Models: Capital Structure of Non-Financial Firms in Jordan

Abstract

The different capital structure theories propose the possible asymmetric behavior of capital structure. Thus, this paper empirically investigates whether non-financial Jordanian firms follow symmetrical or asymmetrical adjustment model. Then, an interaction model with the size and profitability (firm characteristics) investigated the impact of low/high profit and small/large size on the adjustment of leverage towards the target leverage ratio. This paper covered the period of 14 years (2002-2015) for a total of 110 companies listed on Amman Stock Exchange (75 industrial and 35 services). Results indicate that although Jordanian firms seek a target leverage ratio, their adjustment towards that target is Asymmetrical and high profitable and large companies tend to adjust faster than low profitable and small size companies.