On the Ownership Structure, Changing Tax Regulation and the Capital Structure of Industrial Companies Listed on the Jordanian Capital Market

Khaled Abdelal, Ghassan Omet


It is common knowledge that the behaviour of corporations in the generation and allocation of scarce resources is of vital importance. This is why the issue of corporate governance has attracted a lot of research interest. Indeed, this literature examined many issues including the relationship between equity returns and some measures of corporate governance, firm value and the impact of corporate governance on firm performance. In addition, a number of additional papers examined the relationship between ownership structure and a number of financial decisions including capital structure, corporate performance and dividend policy.

The capital structure choice has been an issue long for a long time of great interest in the corporate finance literature. This interest is due to the fact that the mix of funds (leverage ratio), affects the cost and availability of capital and thus, firms’ investment decisions. To date, much of the empirical research has been applied on companies listed on advanced stock markets, and this literature considered factors like company size, profitability, asset tangibility, firm growth prospects and ownership structure as possible determinants of the capital structure choice.

This paper examines the impact of the ownership structure of listed Jordanian industrial companies and the 1996 reduction in corporate tax rates on their capital structure choice. Based on a panel data methodology (1993-2003), the results indicate that the ownership structure of firms does not have any significant impact on capital structure. Similarly, the reduction in corporate taxes did not lead to a significant decrease in companies’ reliance on debt.

JEL classification: G1, G18   


Jordanian Capital Market, Ownership Structure, Tax Shield, Capital Structure.

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