The relationship between capital structure and ownership structure

New evidence from Jordanian panel data

Basil Al-Najjar, Peter Taylor

Research output: Contribution to journalArticle

41 Citations (Scopus)

Abstract

Purpose
– The study aims to investigate the comparatively under‐researched relationship between ownership structure and capital structure in an emerging market. It is also one of the first studies to apply both single and reduced‐form equation methods using a panel data approach. Design/methodology/approach – The study applies econometrics modelling using both single equation and reduces equation models for panel data.

Findings
– The results demonstrate that Jordanian firms follow the same determinants of capital structure as occur in developed markets, namely: profitability, firm size, growth rate, market‐to‐book ratio, asset structure and liquidity. In addition, institutional ownership structure is found to be determined by: assets structure, business risk (BR), growth opportunities and firm size. Finally, the results reveal that assets tangibility, firm size, growth opportunities and BR are considered to be joint determinants of ownership structure and capital structure.

Practical implications
– The practical implication of the study is that investors and managers should consider both capital structure and ownership structure when they take their investment decisions.

Originality/value
– This is the first study of the interaction between institutional ownership and capital structure in Jordan where there are differences, as regards institutional and financial structures, relative to those in developed markets.
Original languageEnglish
Pages (from-to)919-933
Number of pages15
JournalManagerial Finance
Volume34
Issue number12
DOIs
Publication statusPublished - 2008
Externally publishedYes

Fingerprint

Ownership structure
Panel data
Capital structure
Firm size
Assets
Institutional ownership
Growth opportunities
Business risk
Design methodology
Jordan
Profitability
Financial structure
Institutional structure
Emerging markets
Investment decision
Investors
Interaction
Liquidity
Managers
Econometric modelling

Cite this

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The relationship between capital structure and ownership structure : New evidence from Jordanian panel data. / Al-Najjar, Basil; Taylor, Peter.

In: Managerial Finance, Vol. 34, No. 12, 2008, p. 919-933.

Research output: Contribution to journalArticle

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AU - Taylor, Peter

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AB - Purpose– The study aims to investigate the comparatively under‐researched relationship between ownership structure and capital structure in an emerging market. It is also one of the first studies to apply both single and reduced‐form equation methods using a panel data approach. Design/methodology/approach – The study applies econometrics modelling using both single equation and reduces equation models for panel data.Findings– The results demonstrate that Jordanian firms follow the same determinants of capital structure as occur in developed markets, namely: profitability, firm size, growth rate, market‐to‐book ratio, asset structure and liquidity. In addition, institutional ownership structure is found to be determined by: assets structure, business risk (BR), growth opportunities and firm size. Finally, the results reveal that assets tangibility, firm size, growth opportunities and BR are considered to be joint determinants of ownership structure and capital structure.Practical implications– The practical implication of the study is that investors and managers should consider both capital structure and ownership structure when they take their investment decisions.Originality/value– This is the first study of the interaction between institutional ownership and capital structure in Jordan where there are differences, as regards institutional and financial structures, relative to those in developed markets.

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