Capital structure-firm value nexus: the moderating role of profitability

Hamed Ahmad Almahadin () and Yazan Oroud ()

Revista Finanzas y Politica Economica, 2019, vol. 11, issue 2, 375-386

Abstract: This study aims to investigate the moderating role of profitability in the relationship between capital structure and firm value in Jordan, as an example of an emerging economy. For this purpose, two functional models were formulated 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 understanding 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. (search for similar items in EconPapers)
JEL-codes: C33 E22 G10 G30 G32 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:col:000443:018461

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