The effect of financial leverage on company’s capital structure: Evidence from developing market

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Abstract

This research paper aims to investigate the impact of financial leverage on a company’s capital structure. The study focuses on 54 Jordanian industrial companies listed on the Amman Stock Exchange market for the year 2021. The primary objective of the research is to determine whether financial leverage has a significant effect on a company’s capital structure, debt, and equity. The study utilizes a purposive sampling technique, and the data is collected from the annual reports of the selected companies. The social statistical tool SPSS is used to analyze the data and test the hypotheses. The study’s findings indicate that financial leverage has a considerable impact on the capital structure of the organization. The results suggest that the higher the financial leverage, the higher the proportion of debt in the capital structure. Furthermore, the study also discovered that financial leverage has a large impact on a company’s debt and equity, which suggests that financial leverage plays a significant role in determining a company’s financing decisions. The study’s relevance lies in its contribution to the existing literature on corporate finance, particularly in the context of Jordanian industrial companies.

Keywords: Capital Structure, Debt, Equity, Financial leverage, Jordanian Industrial Companies, Amman Stock Exchange, Purposive Sampling, Social Statistical Tools

Authors’ individual contribution: Conceptualization — Z.A.-H. and O.S.S.; Methodology — O.S.S.; Investigation — Z.A.-H.; Resources — Z.A.-H. and O.S.S.; Writing — O.S.S.; Visualization — Z.A.-H.; Supervision — O.S.S.

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

JEL Classification: G32, H63, D63, G23, C83, C15, C58

Received: 08.10.2022
Accepted: 21.04.2023
Published online: 24.04.2023

How to cite this paper: Al-Hawatmah, Z., & Shaban, O. S. (2023). The effect of financial leverage on company’s capital structure: Evidence from developing market. Corporate & Business Strategy Review, 4(2), 168–174. https://doi.org/10.22495/cbsrv4i2art15