The impact of ownership structure and investment decisions on capital structure: an empirical study from Jordan

Abstract

The issue of capital structure is of great importance in corporate finance as it is affected by ownership structure and investment. However, the influence of the interaction between ownership structure and investment on a firm's capital structure remains unresolved. This study seeks to address this issue by investigating the impact of concentrated ownership and company investments on a firm's capital structure as well as the interaction between the identity of the concentrated owner and investment. It uses Jordan as an example and includes firm performance and firm size as control variables.This study adopts a deductive approach and employs quantitative methods involving statistical analysis of the study variables. The sample includes 111 non-financial companies listed on the Amman Stock Exchange from 2010–2019. The study's findings indicate that total concentrated ownership and local ownership have a negative impact on capital structure, while Arab and foreign ownership play an insignificant negative role. The results also reveal that the interaction between concentrated ownership and investment is crucial to a firm's capital structure, with local ownership and investment having a more substantial and precise effect than other ownership components. The study recommends that both investment and ownership level be considered jointly when examining capital structure decisions and that policymakers re-evaluate the investing process to consider the lack of investment opportunities available for Jordanian companies. Moreover, the findings identified a negative impact of a firm's performance and a positive effect of firm size for the effect of firm performance and size on its capital structure. The results also highlighted that it would be more effective to consider the total debt to total assets ratio instead of evaluating long- and short-term components separately when examining capital structure decisions. Furthermore, in the case of assessing the firm performance effect on capital structure, the return on asset (ROA) should be considered instead of the return on equity (ROE) as a proxy of firm performance.Overall, the study's findings shed light on the importance of considering the interaction between ownership structure and investment when making capital structure decisions and provide valuable insights for managers and policymakers. This study is the first empirical study to estimate the interaction between investment and ownership issue using different statistical methods, and the results contribute to the existing literature on capital structure.

Date of Award	Jul 2023
Original language	English
Awarding Institution	University of Bedfordshire
Supervisor	David Crowther (Supervisor)