Determinants of debt-to-equity and its impact on the performance of industrial companies listed on Amman Stock Exchange

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Abstract

This paper focuses on investigating the determinants of the debt-to-equity ratio, and its impact on the performance of 20 industrial companies listed on the Amman Stock Exchange (ASE). It uses a numerical research model comprised of two operations: data envelopment analysis (DEA) followed by regression analysis, that is to identify the key determinants of the said ratio and examine the effects of it and its determinants on companies’ performances. Furthermore, the paper detects that firm risk has a substantially positive impact on debt-to-equity and firm size; whereas tangibility and liquidity have a substantially negative impact on debt-to-equity. Finally, the study finds that debt-to-equity and firm size both have a substantially negative impact on performance; contrastingly, liquidity and tangibility and possess a substantially positive impact on the industrial companies’ performances. The importance of exploring the research problem lies in its potential to further benefit and help the industry leaders in the ASE, and stakeholders of these industries, in developing an action plan that determines the debt-to-equity ratio for financing they will need in order to optimize the company’s sustainability and profit generation (Drobetz & Fix, 2005).

Keywords: Debt-to-Equity, Data Envelopment Analysis, Regression Analysis, Capital Structure, Amman Stock Exchange, Industrial Jordanian Firms, Strategic Management

Authors’ individual contribution: Conceptualization — K.A.; Methodology — A.B.-H.; Software — A.B.-H.; Validation — K.A.; Formal Analysis — A.B.-H.; Investigation — A.B.-H.; Resources — A.B.-H.; Data Curation — A.B.-H.; Writing — Original Draft — A.B.-H.; Writing — Review & Editing — K.A.; Visualization— K.A.; Supervision — K.A.; Project Administration — K.A.; Funding Acquisition — K.A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: The Authors are grateful for the support of the Department of Banking and Financial Sciences, the Faculty of Economics and Administrative Sciences, the Hashemite University. We would also like to express our thanks to Mr. Ali Awartany for his assistance in increasing the citability and credibility of the paper.

JEL Classification: G32, C12, G20

Received: 09.07.2021
Accepted: 17.12.2021
Published online: 21.12.2021

How to cite this paper: Alzubi, K., & Bani-Hani, A. (2021). Determinants of debt-to-equity and its impact on the performance of industrial companies listed on Amman Stock Exchange [Special issue]. Journal of Governance & Regulation, 10(4), 353–364. https://doi.org/10.22495/jgrv10i4siart15