Determinants of Capital Structure in Jordan Industrial Sector
Purpose: This research aims to examine the manager’s behaviour about the capital structure adjustment in relation to the bankruptcy risk, profitability and the asset tangibility. Design/methodology/approach: Data of all industrial sectors of Jordan from the period of 2009-2011 is used for this research. Simple linear regression model is used for data analysis along with the descriptive stats. Findings: High survival probability (low bankruptcy risk) and profitability is positively related with the capital structure (debt equity ratio) but asset tangibility is negatively related with the capital structure. Originality: Significant strength of effect of bankruptcy risk is defined in this paper so that financial analysts and investors can have information about the chances of bankruptcy of the firms in industrial sector in Jordan. This study is creating value in the literature by considering the factor of risk for the firms in the developing country. This study explains the capital structure maintained by the managers by considering the bankruptcy risk and how the profitability and asset tangibility are contributing to the capital structure formation. This paper also gives information to the analysts and investors about the agency problem by considering the behavior of managers regarding debt equity mix.
