Capital Structure and Firm Value Relationship: The Moderating Role of Profitability and Firm Size Evidence from Amman Stock Exchange

Abstract

The study objects for determining whether there is an impact of financial leverage in the capital structure on firm market value, and to determine whether profitability and size of firms play a moderating effect role on the impact relationship of financial leverage on firm market value. The cluster sampling method is used in the selection of the sample among the listed firms at Amman Stock Exchange, where the utility-energy and the food-beverage listed firms are the two cluster, which is selected to constitute the sample. The secondary data covering the period 2011-2020, of the entire listed 5 utility-energy and 8 food beverage firms, had collected and used in the analysis and hypotheses testing. Tobin;s Q is used as an indicator for firm value, and debt ratio is used as a measure of debt in the capital structure mixing. Profitability is measured through the return on assets ratio, while the natural logarithms of total assets is used as a measure for firm size. Using the regression method, the study shows that debt in the capital structure has insignificant impact on firm value, while the results demonstrate that profitability and firm size, each of which, plays a moderating effect role in the effect relationship of debt in the capital structure, on firm market value.