THE MEDIATING EFFECT OF INVESTMENT AND FINANCING DECISIONS ON THE RELATIONSHIP BETWEEN CAPITAL STRUCTURE AND CORPORATE PERFORMANCE: THE CASE OF PALESTINIAN AND JORDANIAN LISTED COMPANIES
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Date
2022-09-22
Authors
Majd Rasem Abdulfattah Al-Mallah
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Abstract
Abstract
Background: Capital structure is one of the most crucial decisions in corporate finance. It has to do with how a company funds its assets through a combination of liabilities and equity. However, maximizing shareholder value is not an easy task as it requires balancing debt versus equity and careful weighing of costs and benefits.
Objectives: To investigate the mediating role that financing, and investment decisions play in the link between business success and capital structure in publicly traded Palestinian and Jordanian companies.
Methods: Data for this study was collected from publicly traded Palestinian and Jordanian companies between 2010-2019. Additionally, the study made use of annual reports of Amman Stock Exchange (ASE) and the Palestine Securities Market (PSE). After its collection, the researcher analyzed the data, using SPSS and multivariate regression analysis and Pearson - correlation to identify the link and impact on parameters.
Results: Investment decisions had a significant effect on the company's performance as measured by Tobin`s Q for listed Jordanian and Palestinian firms. The investment decisions, however, had a significant effect on company performance as measured by PER for listed companies in Jordan. Pertaining to the financing decisions for firms listed on ASE and PSE, it was found that they had a major impact on company performance as indicated by Tobin`s Q. However, the financing decision had no significant impact on corporate performance as measured by PER for the publicly listed companies in Palestine, but it had a significant impact on corporate performance as measured by PER for the listed companies in Jordan. The capital structure had a major impact on the company performance as evaluated by Tobin`s Q for the listed companies in Palestine but the capital structure had no significant impact on corporate performance as measured by Tobin`s Q for the listed companies in Jordan. The capital structure had no appreciable impact on the financial performance by PER for publicly listed companies in both countries.
Conclusion: The capital structure and corporate performance of companies listed on ASE and PSE were significantly and favorably impacted by the financing and investment decisions, which served as a partial mediator.
Keywords: Financial decision; financial statement; capital structure; company performance.