The Impact of Ownership Structure and Corporate Governance on Capital Structure of Jordanian Industrial Companies

Abstract

This study investigates the impact of ownership structure and corporate governance (CG) on the capital structure using 798 firm-year observations of listed companies in the Amman Stock Exchange (2005-2018). The Ordinary Least Squares is utilized to examine the relationships between the dependent variable (i.e., leverage) and a set of independent variables, including ownership concentration factors (proxied by the institutional and largest shareholder) and CG factors (proxied by board size, CEO/chairman duality, board composition, a committee of nominations and remuneration, meetings number). Empirical The data reveal a strong negative (positive) relationship between the largest shareholder (institutional shareholder) and capital structure. Regarding the CG factors, the regression results show that board size, composition, and several meetings are the only factors correlated significantly positively with capital structure. Our examination is primarily motivated by the inconclusive and limited empirical evidence on the association between ownership and governance factors and capital structure. It enriches the literature by providing an updated model on capital structure factors from a non-Western setting. This study adds new evidence by capturing the effect of the unique characteristics of developing countries and the institutional environment. Using data from one of the Middle Eastern nations (Jordan), this study is the first to examine ownership and governance elements in capital structure research over an extended period. The results of this investigation benefit regulatory authorities in monitoring and regulating the corporates. This led to considering the factors affecting Jordanian firms' capital structure. The evidence generated in our study supports the development of strict CG schema rules by protecting the safety of stakeholders and policymakers.