Determinants and multi-factor dynamic model of optimal capital structure : evidence from Jordan

Other Title(s)

محددات هيكل رأس المال الأمثل و النموذج الديناميكي متعدد العوامل لهذا الهيكل : دراسة تطبيقية على الأردن

Dissertant

Ayish, Haytham Khalil

Thesis advisor

al-Khuri, Ratab

Comitee Members

Hamdun, Talal
al-Duri, Muayyad
Gharayibah, Maali A. D. Hisham
al-Maghayrh, Aktham

University

Arab Academy for Financial and Banking Sciences

Faculty

The Faculty of Banking and Financial Sciences

Department

Department of Financial Management

University Country

Jordan

Degree

Ph.D.

Degree Date

2006

English Abstract

The dissertation aims to examine the determinants of capital structure choices and to develop a multi-factor dynamic model of optimal capital structure.

The dependent variable is measured in two ways.

First, as total debt to book value of total assets.

Second, as total debt to market value of total assets.

Our sample consists of 42 Jordanian firms for the period from 1994 to 2003.

The statistical analysis was conducted using the Generalized Method of Moments for a dynamic panel data.

Another test was the factor analysis, which was performed for the purpose of the model building.

The dissertation extends the empirical work on capital structure theory in three ways.

First, it examines empirically a new capital structure determinant (money supply), which was not previously used.

Second, it examines a list of capital structure determinants on the levels of firm, market, and macroeconomic at the same time.

Third, it develops a new dynamic model of optimal capital structure.

The dissertation found that the financial distress, profitability, market to book ratio, market risk (beta), and interest rates are negatively related to the capital structure, while ownership structure, tax advantages, growth opportunities, assets tangibility, firm size, and money supply are positively related to the capital structure.

Therefore, the results of capital structure measured as market value of total assets are matched with the results of book value of total assets except for macro-economic variables.

These variables are interest rate, (which has a positive relationship) and money supply, (which has a negative relationship) with capital structure.

These results have logical explanations.

Also, it found that Jordanian firms are in line with the results obtained on firms in the developed countries concerning capital structure choice.

When we apply the developed model on Jordanian firms (294 case), the results indicate that the new capital structure explains the changes in firms' positions.

In a dynamic setting, we suggest to adjust capital structure with reference to the developed model.

This key finding provides the base for future research, which could focus on developing the model further to be applicable for other countries, with different institutional characteristics.

Main Subjects

Economy and Commerce

Topics

• Management
• Finance
• Capital
• Jordan

No. of Pages

107

Table of Contents

• APA
• MLA
• AMA

Language

English

Data Type

Arab Theses

Record ID

BIM-306787