Author(s): Faris Nasif Al-Shubiri
Journal: Managing Global Transitions
ISSN 1581-6311
Volume: 9;
Issue: 3;
Start page: 289;
Date: 2011;
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Original page
Keywords: knowledge | competitiveness | firm performance | knowledge-based theory
ABSTRACT
This paper provides new insights into the way in which the capitalstructure and market power and capital structure and profitability arerelated. We used sample data of fourteen banks listed on the AmmanStock Exchange for the period from 2005 to 2008.We examine the dependentvariable, which are expressed by total debt deflated by totalassets, while the independent variables are Tobin Q, Growth, Profitability,Size, Ownership, Risk and Tangibility ratio. The OLS estimation resultsindicate that, at lower and higher ranges of Tobin’s Q, banks employhigher debt, and reduce their debt at intermediate range. This isdue to the complex interaction of market conditions, agency costs, andbankruptcy costs. We also show the saucer-shaped relation betweencapital structure and profitability because of the interplay of agencycosts, costs of external financing and interest tax-shield. We find thatsize tangibility variables have a positive influence both on capital structureand on the other hand on growth, while risk and ownership variableshave a negative influence on capital structure.
Journal: Managing Global Transitions
ISSN 1581-6311
Volume: 9;
Issue: 3;
Start page: 289;
Date: 2011;
VIEW PDF
DOWNLOAD PDF Original pageKeywords: knowledge | competitiveness | firm performance | knowledge-based theory
ABSTRACT
This paper provides new insights into the way in which the capitalstructure and market power and capital structure and profitability arerelated. We used sample data of fourteen banks listed on the AmmanStock Exchange for the period from 2005 to 2008.We examine the dependentvariable, which are expressed by total debt deflated by totalassets, while the independent variables are Tobin Q, Growth, Profitability,Size, Ownership, Risk and Tangibility ratio. The OLS estimation resultsindicate that, at lower and higher ranges of Tobin’s Q, banks employhigher debt, and reduce their debt at intermediate range. This isdue to the complex interaction of market conditions, agency costs, andbankruptcy costs. We also show the saucer-shaped relation betweencapital structure and profitability because of the interplay of agencycosts, costs of external financing and interest tax-shield. We find thatsize tangibility variables have a positive influence both on capital structureand on the other hand on growth, while risk and ownership variableshave a negative influence on capital structure.
