Open AccessANALYSIS OF CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE IN THE JORDANIAN INSURANCE SECTOR
Author(s) -
Zelhuda Shamsuddin,
Al Majali Muhammad Ahmad Kamel,
Wan Norhayate Wan Daud,
Wan Sallha Yusoff
Publication year - 2020
Publication title -
humanities and social sciences reviews
Language(s) - English
Resource type - Journals
ISSN - 2395-6518
DOI - 10.18510/hssr.2020.83133
Subject(s) - return on equity , capital structure , business , debt to capital ratio , return on assets , debt ratio , return on capital , finance , debt to equity ratio , return on capital employed , financial system , capital adequacy ratio , stock exchange , debt , economics , equity ratio , financial capital , capital formation , profit (economics) , nonprobability sampling , population , demography , sociology , microeconomics , economic growth , human capital
Purpose of the study: This paper aims to examine the impact of capital structure and financial performance of listed insurance companies in Jordon.
Methodology: This study used secondary data that was collected from Amman stock exchange and annual report of the selected insurance companies from the year 2007-2017. The static panel data analysis technique is used to examine the impact of capital structure on firm’s performance. The capital structure is measured using short-term debt, long-term debt, and equity financing. Whereas financial performance is measured using Return on Asset (ROA), Return on equity (ROE), and Tobin’s Q.
Main Findings: The study findings suggest that capital structure influence the profitability of the listed insurance firms in Jordan. The results also reveal a signicantly positive relation between long-term debt to total assets to profitability indicators, namely, return on assets (ROA), return on equity (ROE) and Tobin’s Q. On the other hand, the results also reveal a short-term debt has a significant positive relationship with return on equity (ROE) and returns on assets (ROA). However, a relationship between short-term debt and Tobin’s Q is not statistically significant.
Applications of this study: The result of this study may assist the insurance sector in Jordon in making decisions regarding capital structure, which is to significantly rely on equity financing or debt financing to reduce financing risk such as agency cost that borne by the equity holders of the Jordanian insurance firms.
Novelty/Originality of this study: The study noted that insurance firms generally play a crucial role in the economic development of every country. This study provides evidence that Jordanian insurance firms need to diversify their sources of financing and not rely significantly on debt financing, as the results prove that equity financing is a profitable source of financing.