Finanz. polit. econ., ISSN: 2248-6046, Vol. 11, N.° 2, julio-diciembre, 2019, pp.

375-386
http://doi.org/10.14718/revfinanzpolitecon.2019.11.2.9

Hamed Ahmad Almahadin*

Yazan Oroud**

Capital Structure-Firm Value

Recibido: 6 de agosto de 2019
Concepto de evaluación: 31 de octubre de 2019
Nexus: The Moderating Role
Aprobado: 12 de diciembre de 2019 of Profitability
Artículo de investigación
ABSTRACT
© 2019 Universidad Católica de Colombia. This study aims to investigate the moderating role of profitability in the
Facultad de Ciencias relationship between capital structure and firm value in Jordan, as an example of
Económicas y Administrativas. an emerging economy. For this purpose, two functional models were formulated
Todos los derechos reservados to capture the direct relationship as well as the interaction impact of capital
structure on firm value. The robust empirical findings of panel data analysis
provide strong evidence of an adverse relationship between capital structure
and firm value. The findings confirm that the impact of capital structure appears
to be complicated in nature and difficult to examine without controlling for
the interaction of profitability as one of the major determinants. Therefore,
studying the interaction effect provides ample evidence and enhances the un-
derstanding of the link between firm value and capital structure. The empirical
results of the study may provide important insights and policy implications to
decision-makers.
Keywords: Capital structure, firm value, Jordan, moderating effect,
panel analysis, profitability.
JEL Classification: C33; E22; G10; G30; G32

Cómo citar este artículo / To reference this article / Para citar este artigo:
Almahadin, H., A. & Oroud, Y. (2019). Capital Structure-Firm Value Nexus:
The Moderating Role of Profitability. Revista Finanzas y Política Económica, 11(2), 375-
386. doi: http://dx.doi.org/10.14718/revfinanzpolitecon.2019.11.2.9

Relación entre la estructura del capital y el valor de

la empresa: el papel moderador de la rentabilidad
* PhD in Finance. Assistant Professor of
Finance, Department of Banking and Finance,
RESUMEN
Applied Science Private University, Amman,
Jordan. Email: [email protected]. Este estudio tiene como objetivo investigar el papel moderador de
https://orcid.org/0000-0003-2129-0791.
la rentabilidad en la relación entre la estructura del capital y el valor de la
PhD in Accounting. Assistant Professor of empresa en Jordania como ejemplo de una economía emergente. Con este
Accounting, Department of Accounting, propósito en mente, se formularon dos modelos funcionales para entender la
Isra University, Amman, Jordan. Email:
[email protected].
relación directa y el impacto de la interacción entre la estructura del capital
https://orcid.org/0000-0003-0755-9854. y el valor de la empresa. Los sólidos resultados empíricos del análisis de datos

375
 de panel proporcionan una fuerte evidencia de una relación adversa entre la
estructura del capital y el valor de la empresa. Los resultados confirman que
el impacto de la estructura de capital parece ser de naturaleza complicada y
difícil de examinar sin controlar la interacción de la rentabilidad como uno
de los principales determinantes. Por lo tanto, estudiar el efecto de interac-
ción no solo proporciona una amplia evidencia, sino también contribuye a un
mejor entendimiento del vínculo entre el valor de la empresa y la estructura
de capital. Los resultados empíricos del estudio pueden ofrecer importantes
ideas e implicaciones políticas para los responsables de la toma de decisiones.
Palabras clave: análisis de panel, efecto moderador, estructura del
capital, Jordania, rentabilidad, valor de la empresa.

Relação entre a estrutura do capital e o valor da empresa:

o papel moderador da rentabilidade

RESUMO
Este estudo tem como objetivo pesquisar o papel moderador da ren-
tabilidade na relação entre a estrutura do capital e o valor da empresa na
Jordânia, como exemplo de uma economia emergente. A partir desse propósito,
foram formulados dois modelos funcionais para entender a relação direta e o
impacto da interação entre a estrutura do capital e o valor da empresa. Os
sólidos resultados empíricos da análise de dados de painel proporcionam uma
forte evidência de uma relação adversa entre a estrutura do capital e o valor
da empresa. Além disso, confirmam que o impacto da estrutura do capital
parece ser de natureza complexa e difícil de analisar sem controlar a interação
da rentabilidade como um dos principais determinantes. Portanto, estudar o
efeito da interação não somente possibilita uma ampla evidência, mas também
contribui para entender melhor o vínculo entre a estrutura de capital e o valor
da empresa. Os resultados empíricos deste estudo podem oferecer importantes
ideias e apresentar consequências políticas para os responsáveis pela tomada
de decisões.
Palavras-chave: análise de painel, efeito moderador, estrutura do capital,
Jordânia, rentabilidade, valor da empresa.

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 CAPITAL STRUCTURE-FIRM VALUE NEXUS: THE MODERATING ROLE OF PROFITABILITY

INTRODUCTION (Hamid, Abdullah & Kamaruzzaman, 2015). The

trade-off theory proposed by Jensen and Meckling
Financing decisions constitute one of the most vital
(1976) demonstrates that financial managers in
decisions for a corporation’s chief financial officer.
profitable companies, in general, prefer to finance
This decision-making involves an efficient mixing
their operating activities by debt, rather than by eq-
of different available financing sources (debt vs.
uity financing (Miller, 1977; Ahmad & Abdul-Rahim,
equity) to minimize the weighted average cost of
2013). Based on this theory, firm managers tend to
capital (WACC). Minimizing the WACC can increase
use more debt in their capital structure to maximize
economic returns, eventually positively affecting
tax benefits compared to cost of financial distress
firm value (Groth & Anderson, 1997). Constructing
(Nadaraja, Zulkafli & Masron, 2011). Therefore,
an optimal capital structure leads also to momen-
optimal capital structure depends on balancing both
tum in the development of firms. Moreover, capital
tax shield benefits and cost of financial distress.
structure combination is considered as a critical
However, the pecking order theory of Myers and
and strategic decision that has historically been
Majluf (1984) presumes that highly profitable com-
observed to be puzzling (Kumar, Colombage &
panies tend to finance their activities with low level
Rao, 2017). Therefore, capital structure decisions
of debt. Based on this theory, financial managers
dynamically affect firm value and are an essential
prefer self-financing through retained earnings as
and inextricable part of the stockholders’ goal of
a first priority compared to using borrowed funds,
wealth maximization.
with the last resort being issuing equity instruments
The importance of incorporating capital
(Ting & Lean, 2011).
structure decisions is first highlighted by the pio-
In light of the contradicting arguments in
neering work of Modigliani and Miller (1958). The
theoretical and empirical studies, the present study
study argues that firm value is not affected by the
suggests that the relationship between capital
combination of capital structure (irrelevant prop-
structure and firm value must be examined from
osition); assets allocation (investment decisions)
another perspective, taking into consideration pri-
is the main determinants of firm value. The M&M
or evidences showing that the study of the impact
proposition (1958) was developed under very
of capital structure decisions is complicated and
restrictive assumptions, i.e.: (i) the capital market
difficult without controlling for the interaction
is perfect; (ii) the expectations of investors are
of its major determinants. Therefore, this study
homogenous; and (iii) there are neither taxes nor
investigates the moderating role of profitability in
transaction costs. Under real market conditions, the
the capital structure-firm value relationship of the
suggestion of irrelevant proposition is unrealistic. In
firms listed on the Amman Stock Exchange (ASE) in
1963, Modigliani and Miller developed their second
Jordan. To the best of the authors’ knowledge, this
proposition after including the benefits of tax shield,
is the first study that investigates the interaction of
achieved by using debt in the capital structure.
profitability in this relationship. Thus, the findings
Based on this latest proposition, firm managers
of the present study may provide important insights
may prefer to use more debt to attain stockholders’
and policy implications for decision-makers.
wealth maximization as represented by firm value.
Jordan is selected as an emerging economy
Subsequently, two theories have been de-
of interest due to many reasons: Jordan’s economy
veloped to provide additional explanations about
is one of the emerging economies in the Middle
the capital structure-firm value relationship: the
East region that has an underdeveloped financial
trade-off theory and the pecking order theory. These
market with limited financing channels. The coun-
theories provide inconsistent views about the im-
try’s financial system is bank-based, which means
pact of capital structure combination on firm value
that the banking sector of Jordan plays a critical

377
 Hamed Ahmad Almahadin • Yazan Oroud

role in the economy and is a key source of funds capital structure influences, Pandey (2004) states
for companies. At the same time, the limited num- that managers should pay considerable attention
ber of banks in Jordan pose crucial challenges for to capital structure decisions to attain the stockhol-
financial managers to find the needed funds without ders’ wealth maximization goal.
restrictive conditions. With a relatively high tax rate From another perspective, a massive number
compared to its neighboring countries, companies of studies have examined the relationship between
in Jordan tend to increase their indebtedness to financial performance and capital structure. Among
achieve more tax benefits. And, finally, during the the various financial performance indicators, prof-
last decade, there were several political issues in itability gauges are used as proxies of financial
the region that have affected the financial position performance, which are strongly associated with
of Jordanian firms. a firm’s capital structure. Jensen and Meckling
The rest of this research paper is organized (1976) have argued about the possible association
as follows: 1. Literature review is presented in between capital structure and firm performance
section 2. Research methodology is summarized since 1976. In this respect, Kinsman and Newman
in section 3. Section 4 presents discussions of the (1999) illustrated that studying this relationship
empirical results. Finally, section 5 summarizes the will have crucial implications for decision-makers
main conclusions and policy implications. and investors for many reasons: first, firms’ debt
level has increased sharply during the last few
decades; second, there is an inherent possible
LITERATURE REVIEW conflict of interest between manager and principal
Several empirical studies have argued about the role regarding the appropriate degree of leverage; and
of capital structure in firm value. An unanswered finally, such a study can reveal critical signals about
question in this discussion is whether or not an the shareholders’ wealth maximization progress.
individual firm has the optimal capital structure Numerous researchers have provided mixed and
that can affect its market value. In other words, the inconsistent results about this relationship. For in-
purpose of these studies was to examine whether stance, a positive relationship is found by Ghosh and
firm value is affected positively or negatively by the Jain (2000), Amran and Che Ahmad (2011), Ahmad
usage of debt compared to equity (Hatfield, Cheng and Abdul-Rahim (2013), and Hamid, Abdullah,
& Davidson, 1994). In this regard, Ross (1977) as and Kamaruzzaman (2015). All they asserted that
well as Brealey, Leland and Pyle (1977) illustrated using financial leverage is one of the main ways
that firm value increases as the degree of leverage to improve the financial performance of levered
increases. Therefore, managers attempt to use opti- companies. In contrast, Fama and French (1998),
mal debt level to positively affect firm value; this is Simerly and Li (2000), and Nadaraja, Zulkafli &
true in case of no conflict of interest between prin- Masron (2011) found an adverse relationship be-
cipal and agent. This point of view is confirmed also tween capital structure and profitability. Ahmed
by Kochhar (1997) and Sander (2003): an individual et al. (2010) proposed that profitability is one of
firm can construct its optimal capital structure the main factors that influences capital structure
by efficient mixing of fund resources, which will decisions.
positively influence firm value. A related study by This literature review evidences a lack of
Stulz (1990) founds inconsistent results; this study studies on capital structure in emerging economies
asserts that using debt among capital structure since the majority of studies have been done in the
components may affect firm value in a bidirectional context of developed economies. In this regard, very
manner, either positively or negatively. In terms of few studies have tested the link between capital

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 CAPITAL STRUCTURE-FIRM VALUE NEXUS: THE MODERATING ROLE OF PROFITABILITY

structure and profitability as proxies to measure RESEARCH METHODOLOGY

the financial performance of firms in developing
economies. For example, in Hong Kong, Yat Hung
et al. (2002) found a positive relationship between Sampling and data collection
financial leverage indicators and return on equity
(ROE) as a measure of profitability. Kyereboah- In this study, the sample includes all firms listed
Coleman (2007) evinced the same relationship on the ASE during the period of 2013-2017, except
between the degree of financial leverage and ROE for banks and insurance companies. This period
as well as return on assets (ROA), as measures of was chosen as it provides the most recent available
financial performance in sub-Saharan Africa. In data. A total of 213 firms were listed on the ASE
Pakistan, Saleem et al. (2013) found a significant during the period of the study with a total of 1065
and positive impact of profitability on the capital observations. Similar to earlier studies, secondary
structure of oil and gas firms listed on the Karachi financial data is the main source, gathered from
Stock Exchange. Contrasting results on the relation- the annual reports of listed companies available on
ship between capital structure and various profit- the ASE website. It is argued that secondary data
ability measurements were found by Majumdar and is more suitable than primary data as it is usually
Chhibber (1999) in their study of Indian companies. permanent, available, and can be easily checked
In Jordan, Zeitun and Tian (2007) found a negative (Denscombe, 2008).
relationship between capital structure and financial
performance, measured by market and accounting
Research framework
indicators. Finally, in the Republic of Mauritius,
Ramlall (2009) confirmed the arguments of the As mentioned above, many studies have investigated
pecking order theory about an inverse relationship the relationship between capital structure and firm
between capital structure and profitability, which is value (e.g., Modigliani & Miller, 1958, 1963; Miller,
attributed to a preference for internal self-financing 1977; Myers & Majluf, 1984; Fama & French, 1998;
over borrowed funds. Ting & Lean, 2011; Kumar, Colombage & Rao, 2017).

Figure 1.

Research Framework

Pro�itability

Capital Structure Firm Value

• Size
• Growth
• Liquidity
• Business Risk

Source: Author's elaboration.

379
 Hamed Ahmad Almahadin • Yazan Oroud

However, to the best of our knowledge, very few Where V (Firm Value), DB (Capital Structure),
studies have looked into a possible interaction of S (Firm Size), GR (Growth), LQ (Liquidity), BR
profitability as a moderator in the capital struc- (Business Risk), α (intercept term), β’s are coeffi-
ture-firm value relationship. Thus, the present study cients to be estimated, and ε is the estimate error
attempts to contribute to the body of knowledge by term for each firm (i) and each year (t).
considering the moderating effect of profitability in The second model, Equation 2, explains the
this relationship, as represented in Figure 1. role of profitability as a moderator variable in the
capital structure-firm value relationship:

Variables measurement Vit = α + β1DBit + β2PROFit + β3(DB*PROF) it

+ β4S it + β5GR + β6LQit + β7BRit + εit [2]
In this study, firm value is measured by Tobin’s Q
ratio. Capital structure is gauged by debt ratio, while Where V (Firm Value), DB (Capital Structure),
profitability is measured by operating profits to as- PROF (Profitability), S (Firm Size), GR (Growth), LQ
sets, which is calculated as earnings before interest (Liquidity), BR (Business Risk), α (intercept term),
and tax (EBIT) over total assets. In order to capture β’s are coefficients to be estimated, and ε is the esti-
the influence of other factors, the study used a set mate error term for each firm (i) and each year (t).
of control variables, i.e., size of firm, measured by A panel data analysis is adopted to examine
the natural logarithm of assets; growth, measured the main functional models, which is the most
by market-to-book ratio; liquidity, measured by commonly used analysis in accounting and finance
current ratio; and business risk, measured by the studies. Panel data, also known as cross-sectional
standard deviation (SD) of EBIT. The abbreviations time-series data or longitudinal data, is typically re-
and measurements of variables are represented in presented by data about several individual aspects
Table.1. observed over a period of time. Therefore, panel
data observations usually include a minimum of two
aspects: a time-series dimension represented by t;
Research models and analysis and a cross-sectional dimension represented by i
techniques (Hsiao, 2003). In this type of analysis, a fixed-effects
This research is based on two functional models. or a random-effects model is applied to control for
The first one is presented in Equation 1 to examine heterogeneity in panel data regression (Wooldridge,
the direct impact of capital structure on firm value: 2010). Baddeley and Barrowclough (2009) as well
as Wooldridge (2010) explained the importance
Vit = α + β1DBit + β2Sit + β3GRit + β2LQit of taking into consideration the individual factors
+ β3BRit + εit [1] of panel data observations, which remain constant

Table 1.

Measurement of Variables

Variables Acronym Measurement

Firm Value V Tobin's Q Ratio
Capital Structure DB Total debt/total assets
Profitability PROF EBIT / Total Assets
Firm Size S LogAssets
Growth GR Market Value / Book Value
Liquidity LQ Current Ratio
Business Risk BR SD of EBIT

Source: Authors' calculations.

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 CAPITAL STRUCTURE-FIRM VALUE NEXUS: THE MODERATING ROLE OF PROFITABILITY

over time and cannot be assumed as independently may differ within observations through time, which
distributed across time, whereas pooled ordinary raises the issue of groupwise heteroscedasticity
least squares (OLS) estimation may introduce bias (Baum, 2001). According to Baltagi (2008), ignoring
in the results, which then can lead to incorrect the presence of heteroscedasticity can result in
inferences and cannot be applied to panel data. In inefficient coefficient estimations and biased stan-
pooled OLS, firm-specific factors are not considered dard errors. Accordingly, the modified Wald test for
when applied to panel data, which results in auto- groupwise heteroscedasticity is used to check the
correlation as there is no isolation between years existence of the heteroscedasticity problem. With
in the same firm. Also, it could result in omitted regard to the heteroscedasticity problem in tested
variables bias and heterogeneity bias because ob- models, the robust covariance matrix estimation of
servations could have similar characteristics that Driscoll and Kraay (1998) is employed to correct
are not considered (Baddeley & Barrowclough, and avoid this problem. Thus, robust results are
2009). Therefore, the influence of capital structure presented after controlling for the possibility of
on firm value is one of the issues that needs to be existing heteroscedasticity problem.
studied using panel data analysis (Donker, Poff & The direct impact of capital structure on firm
Zahir, 2008). value of Model 1 was tested and the empirical outco-
mes are reported in Table 2. The estimations show
that capital structure negatively affects firm value
EMPIRICAL RESULTS at significance level of 10 percent with estimated
In general, the Hausman test compares fixed-effects coefficient value of -2.45; this result is consistent
to random-effects coefficients to decide which mo- with Stulz (1990). Furthermore, the estimated
del is appropriate. If the p-value is significant, then coefficients of control variables demonstrate that
the fixed-effects model should be applied since using firm size and growth have a positive and significant
random-effects would be biased. However, if the p- impact on firm value. Kumar, Colombage and Rao
value is insignificant, random-effects can be safely (2017) postulated that firm size and growth seem to
used (Wooldridge, 2010). In the current study, the have a positive impact on firm value as it is believed
Hausman test was applied to the two models and the that larger firms with higher growth tend to have
results show significant p-values for both models, more financing flexibility as they enjoy economies
which means that a fixed-effects model should be of scale. In contrast, business risk negatively affects
adopted. In panel data, even if the variance of errors firm value at significance level of 0.05. Firms with
is constant between cross-sectional observations, it volatile returns may have financing disability that

Table 2.

Empirical Outcomes of Model 1

Vit = α + δi + β1 DRit + β2 Sit +β3 Git + β4 BRit + β5 LQit + εt

Variables β t P>|t|
Capital Structure -2.450 -1.86 0.063*
Size 2.581 3.96 0.000***
Growth 2.182 3.58 0.000***
Business Risk -0.292 -2.02 0.044**
Liquidity -0.093 -0.86 0.387
Constant -15.605 -3.22 0.001***
R2 = 0.323 F= 22.31***
Notes: Significance level *** 1%, ** 5%, and * 10%
Source: Author's calculations.

381
 Hamed Ahmad Almahadin • Yazan Oroud

limits their fund resources, which, at the same time, WACC and thus maximize firm value. This theory
adversely affects the market value of their stocks. demonstrates that companies must have optimal
Regarding the diagnostics of the overall model, the capital structure with appropriate degree of lever-
F-test indicates that the estimated model is suitable age; as the amount of borrowed funds increases
at the significance level of 0.01, and the R-square is compared to other elements in the capital structure,
approximately 32 percent. firm value is adversely influenced.
Based on prior studies by Cohen & Wills Besides estimations of profitability, size and
(1985) and Zhou et al. (2014), using moderator growth have a positive and significant effect on
variable(s) in case of inconsistent results will lead firm value. The highest estimated coefficient value
to superior empirical outcomes. The estimated in- is recorded at 3.83 for profitability. This indicates
teraction of profitability as a moderator variable in that Jordanian firms are influenced positively by
the relationship between capital structure and firm increasing profitability. In other words, increasing
value is summarized in Table 3. Compared to the profitability will be followed by an increase in the
estimations of Model 1, capital structure still neg- firm value of Jordanian firms. Current and prospec-
atively affects firm value with a higher coefficient tive investors prefer profitable firms for investment;
value of -4.0, indicating a greater adverse impact on this creates continuous and stable demand for their
firm value. The significance level of this coefficient stocks, which positively reflects on the market value
is 0.01, which is much better than the significance of the stocks. Regarding the positive impacts of firm
level of the same variable when estimated in Model size and growth, the empirical outcomes indicate
1. This can be attributed to a moderator variable that firm size and growth are positive signals for
being used to capture the interaction effect. The investors, thereby resulting in an increase in firm
moderator factor of profitability with debt ratio ad- value. In contrast, the coefficient of business risk is
versely affects firm value by an estimated coefficient negative and strongly significant. This result reveals
value of -10.80 at strong significance level of 0.01. the negative signaling of earnings volatility; inves-
This result confirms the opposite role of debt in firm tors are reluctant to hold or to buy stocks of volatile
value performance; as the degree of indebtedness companies with earnings uncertainty, which then
increases, the firm value of the sampled firms de- adversely affects firm value.
creases. These results can be explained more clearly Based on the above results, it is clear that the es-
using the trade-off theory; companies should have timated coefficient values and significance levels are
an optimal capital structure that can minimize the better in the second model compared to the first one.

Table 3.

Empirical Outcomes of Model 2

Vit = α + δi +β1 DRit + β2 PROFit + β3 (DR*PROF)it + β4 Sit +β5 Git + β6 BRit + β7 LQit + εt
Variables β t P>|t|
Capital Structure -4.000 -2.80 0.005***
Profitability 3.831 2.30 0.021**
Moderator# -10.800 -2.74 0.006***
Size 3.030 4.42 0.000***
Growth 2.230 3.66 0.000***
Business Risk -0.267 -1.85 0.064*
Liquidity -0.110 -1.01 0.311
Constant -18.448 -3.65 0.000***
R2 = 0.343 F = 17.27***
Notes: Significance level *** 1%, ** 5%, and * 10%
Source: Author's calculations.

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 CAPITAL STRUCTURE-FIRM VALUE NEXUS: THE MODERATING ROLE OF PROFITABILITY

This can be attributed to the inclusion of the mo- considering the impact of this policy on firm value.
derator variable of profitability in the model. The As it is well-known, using more borrowed funds
overall model is fit at 0.01 level of confidence and indicates increasing financial leverage as well as
the value of R-square is 34 percent. The stronger increasing risk of bankruptcy. This, in turn, will
results can be attributed to the moderator variable, send negative signals to lenders and investors.
which gives more support to the main contribution Lenders will be reluctant to provide more loans
of the present study. To sum up, the interaction to these companies without restrictive conditions
effect of profitability with debt ratio as a combined and higher fixed charge payments, especially in
factor has a simultaneous effect on the dependent case of underdeveloped capital markets and limited
variable (firm value). Studying the interaction effect numbers of banks as in Jordan. Also, current and
of these factors provides ample evidence and better prospective investors will have less incentives to
understanding of the link between firm value as buy shares of heavy debt companies; this will then
dependent variable and capital structure as inde- lead to less demand and more supply, resulting in
pendent variable. the fall of share prices.
The findings of the study provide critical
financial insights and policy implications for prac-
CONCLUSION AND POLICY titioners. Capital structure combination is a critical
IMPLICATIONS issue that must be seriously considered in the ac-
The present study investigates the relationship counts of a company. This combination is a crucial
between capital structure and firm value with factor that has direct and indirect influences on the
profitability playing a moderating role. The sample financial position of a firm, which eventually will
comprises 213 firms listed on the ASE during the be reflected in firm value. Thus, financial managers
period of 2013-2017. A fixed-effects panel data must efficiently mix their capital structure to reach
analysis was used. The basic argument of the stu- optimal combination so as to maximize stockhol-
dy is that capital structure decisions are puzzling, ders’ wealth. They should also obtain momentum
complicated in nature, and difficult to examine and continuous profitability, size, and growth
without controlling for the interaction of its major trends, in order to positively affect firm value. At
determinants (profitability and debt ratio). There the same time, financial officers should achieve
have been several contradictory findings in theo- earnings persistence, which eliminates the impact
retical and empirical studies. Therefore, studying of bad signalling from the business risk indicator.
the interaction effect of profitability with debt ratio As for current and prospective investors, they must
as a combined factor on firm value is necessary to assess the overall financial position of firms without
capture the possible simultaneous effect of these focusing their attention on a minor issue, such as
factors on firm value. debt position.
The empirical outcomes reveal that the firm
value of Jordanian firms is negatively influenced by
ACKNOWLEDGMENT
debt ratio as a measure of capital structure combi-
nation. This result, together with high indebtedness The corresponding author is grateful to the Applied
observed in data, indicates that the studied firms Science Private University, Amman, Jordan, for the
in Jordan have no optimal capital structure. In this financial support granted to this research project.
regard, these firms may be using heavy debt in The second author is grateful to Isra University for
order to finance their operating activities without the financial reward granted to this research.

383
 Hamed Ahmad Almahadin • Yazan Oroud

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