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Debt-Performance Relation. Evidence from Jordan

  • Imad Zeyad Ramadan

    ()

    (Applied Science University)

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    We investigated the debt-performance relation for all 77 Jordanian industrial companies over the period between 2000 and 2011. By utilizing 2 alternative measurements of profitability ratio, as proxies of the firm’s performance, that are ROA and ROE, three types of debt as proxies of the debt structure that are LTD, STD, and TD, with the existence of three control variables that are SIZE, SGR, and EFFI, six models were tested using unbalanced pooled cross-sectional time series regression method. The results of this paper show that debt structure expressed as: LTD, STD, and TD have a negative and significant relationship with ROA. Also the measures of the debt structure, except for the LTD, have the same significant relation with ROE. The finding of this study confirm the pecking order theory, and are consistent with those obtained by Wang (2010) Kayo, E.K. and Limura, H. (2010), and Vasiliou et al.,(2009).

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    Article provided by Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences in its journal International Journal of Academic Research in Accounting, Finance and Management Sciences.

    Volume (Year): 3 (2013)
    Issue (Month): 1 (January)
    Pages: 323-331

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    Handle: RePEc:hur:ijaraf:v:3:y:2013:i:1:p:323-331
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    1. Linda Schmid Klein, 2002. "Debt vs. Equity and Asymmetric Information: A Review," The Financial Review, Eastern Finance Association, vol. 37(3), pages 317-349, 08.
    2. Margaritis, Dimitris & Psillaki, Maria, 2010. "Capital structure, equity ownership and firm performance," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 621-632, March.
    3. Charles J. Hadlock & Christopher M. James, 2002. "Do Banks Provide Financial Slack?," Journal of Finance, American Finance Association, vol. 57(3), pages 1383-1419, 06.
    4. Allen N. Berger & Emilia Bonaccorsi di Patti, 2002. "Capital structure and firm performance: a new approach to testing agency theory and an application to the banking industry," Finance and Economics Discussion Series 2002-54, Board of Governors of the Federal Reserve System (U.S.).
    5. Joshua Abor, 2005. "The effect of capital structure on profitability: an empirical analysis of listed firms in Ghana," Journal of Risk Finance, Emerald Group Publishing, vol. 6(5), pages 438-445, November.
    6. Dimitrios Vasiliou & Nikolaos Eriotis & Nikolaos Daskalakis, 2009. "Testing the pecking order theory: the importance of methodology," Qualitative Research in Financial Markets, Emerald Group Publishing, vol. 1(2), pages 85-96, June.
    7. Paul A. Phillips & Mehmet A. Sipahioglu, 2004. "Performance implications of capital structure: evidence from quoted UK organisations with hotel interests," The Service Industries Journal, Taylor & Francis Journals, vol. 24(5), pages 31-51, September.
    8. Anthony Kyereboah-Coleman, 2007. "The impact of capital structure on the performance of microfinance institutions," Journal of Risk Finance, Emerald Group Publishing, vol. 8(1), pages 56-71, January.
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