The Determinants of Capital Structure:A Conceptual Understanding of Non-Financial Firms in Jordan

Abstract

Jordanis a prominently positioned Middle Eastern country. Economically,Jordan relies onnon-financialfirms which make up the majority of the manufacturingand services sector firms. The Jordanian economy has suffered from high inflation rates, severe unemployment, and bad debts caused by the Arab Spring and political crises that have mired the country since 2011. Bad debts have resulted in firms being unable to settle their loans, hence forcing businesses toresort to combining equity and debt to produce the lowest cost of capital. This justifies the need to investigate the determinantsof capital structure(CS) usingrelevant theories.Several key theories related toCSwill beexamined in this study, including the Trade-off Theory andthe Pecking-Order Theory. This study mainly aims to come up with a theoretical framework that can identify the determinants of CSamongstnon-financial Jordanian firms.The determinants in question include firm size, liquidity,profitability,assets tangibility, growthopportunities, and risks.This study will be carried out by collecting secondary data derived from the annual reports of firms listed on the Amman Stock Exchange (ASE).The researchers expect that the outcomes can improve understandingand facilitate further studies on the subject, ultimately guiding CS decision-making. This study is also expected to facilitate finance managers in making better CS decisions towards maximising shareholder wealth.