The relationship between capital structure and ownership structure: New evidence from Jordanian panel data

• Published in: Managerial finance 2008-10, Vol.34 (12), p.919-933
• Main Authors: Al-Najjar, Basil, Taylor, Peter
• Format: Article
• Language: English
• Subjects: Bankruptcy; Boards of directors; Business ownership; Capital markets; Capital structure; Corporate governance; Developing countries; Dividends; Emerging markets; Equity financing; Industrialized nations; Institutional investments; LDCs; Ratios; Stockholders; Studies; Volatility
• ISSN: 0307-4358; 1758-7743
• DOI: 10.1108/03074350810915851

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. The study applies econometrics modelling using both single equation and reduces equation models for panel data. 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. 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. 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.