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Ebook Pecking Order Theory, Trade-Off Theory and Determinants of Capital Structure: Empirical Evidence from Jordan

Submitted by wulan on Tue, 02/23/2010 - 07:29

Jordan is a small Arab country in the Middle East region, with a population of 5.3 million and a population growth rate of 2.4%. The majority (62.6%) reside in the central region, while 27.7% and 9.7% of the population reside in the Northern and Western regions respectively. The total area of Jordan is 89.3 thousands sq. km; approximately 7.8% is agricultural land (Department of Statistics, 2005).

After gaining its independence, Jordan was confronted with many problems relating to social and economic development. The lack of financial resources has hindered its efforts and ambitions to achieve a sustainable economic growth and development, increasing its dependency on external income flows in the form of grants from other countries in the region and remittances from Jordanians working, mainly, in rich Arab oil countries. Like other developing countries, Jordan has chosen a state–sponsored route for development with the Jordanian private corporate sector playing a minor role. Therefore, many development banks have been established to meet its investment financing requirements.

The considerable role of the Government with its extensive involvement in the financial system during the period of 1960-1990 has adversely impacted the efficiency of the financial system, the allocation of financial resources and has resulted in structural imbalance in all sectors of Jordanian economy (Maghyereh, 2004). This necessitated a comprehensive programme of economic reforms, which aimed to bring about fiscal and monetary stability and structural transformation in the economy.

Therefore, Jordan, since 1990, has been implementing comprehensive economic, social, and structural reform programmes. These programmes aim to improve the efficiency and competitiveness of the economy, to integrate Jordan with the international economy and to create a favourable investment environment. They also paid significant attention to the problems of poverty and unemployment through providing loans to small industries and handicraft professions through specialised financial institutions.

CONTENTS

ABSTRACT
DEDICATION
ACKNOWLEDGEMENTS
DECLARATION STATEMENT
TABLE OF CONTENTS
LISTS OF TABLES
1. CHAPTER 1 - INTRODUCTION AND OVERVIEW

    1.1 INTRODUCTION
    1.2 MOTIVATIONS AND CONTRIBUTION OF THE STUDY
    1.3 OBJECTIVES OF THE STUDY
    1.4 RESEARCH METHODOLOGY

2. CHAPTER 2 - LITERATURE REVIEW

    2.1 INTRODUCTION
    2.2 TRADE-OFF THEORY (TARGET CAPITAL THEORY)
      2.2.1 Tax advantage and reduction of free cash flow agency costs
      2.2.1.1 Tax advantage of debt
      2.2.1.2 Reduction of free cash flow agency costs
      2.2.2 Costs of debt
      2.2.2.1 Costs of financial distress
      2.2.2.2 The agency costs of debt
      2.2.3 Empirical evidence on determinants of capital structure (static trade-off)
      2.2.3.1 Empirical evidence from developed market
      2.2.3.2 Empirical evidence from developing market
      2.2.3.3 Evidence from Jordan
      2.2.4 The empirical evidence on dynamic trade-off (target adjustment) theory

    2.3 PECKING ORDER THEORY

      2.3.1 The critical criticisms of pecking order theory
      2.3.2 Empirical evidence of pecking order theory

    2.4 CONCLUSIONS

3. CHAPTER 3 - EMPIRICAL INVESTIGATION OF DETERMINANTS OF CAPITAL STRUCTURE

    3.1 INTRODUCTION
    3.2 DETERMINANTS OF CAPITAL STRUCTURE AND MODEL
      3.2.1 Determinants of Capital Structure and theoretical background and definition
      3.2.1.1 Profitability
      3.2.1.2 Tangibility
      3.2.1.3 The firm’s Size
      3.2.1.4 Non-debt tax shields
      3.2.1.5 Growth opportunities
      3.2.1.6 Earning Volatility
      3.2.2 The Model

    3.3 STATISTICAL ANALYSIS

      3.3.1 Descriptive statistics
      3.3.2 Estimation results

    3.4 CONCLUSION

5. CHAPTER 4 - EMPIRICAL INVESTIGATIONS OF PECKING ORDER THEORY

    4.1 INTRODUCTION
    4.2 PECKING ORDER MODELS
      4.2.1 The first model specification
      4.2.2 The second model specification
      4.2.3 The third model specification

    4.3 THE ESTIMATION RESULTS OF PECKING ORDER MODELS

      4.3.1 The estimation results of model 4.3
      4.3.1.1 The estimation results of model 4.3 for small and large firms
      4.3.2 The estimation results of model 4.4 and 4.5
      4.3.2.1 The estimation results of model 4.5 for small and large firms
      4.3.3 The estimation results of model 4.6

    4.4 CONCLUSION

6. CHAPTER 5 - EMPIRICAL INVESTIGATION OF TARGET ADJUSTMENT THEORY

    5.1 INTRODUCTION
    5.2 TARGET ADJUSTMENT MODELS
      5.2.1 Symmetric adjustment model 5.1
      5.2.2 Asymmetric adjustment models 5.2 and 5.3
      5.2.3 Error Correction model 5.5

    5.3 THE ESTIMATION RESULTS

      5.3.1 The estimation results of symmetric adjustment model 5.1
      5.3.1.1 The estimation results of model 5.1 for small and large firms
      5.3.1.2 The estimation results of symmetric adjustment model 5.1 for surplus and deficit firms
      5.3.2 The estimation results of asymmetric adjustment models 5.2 and 5.3
      5.3.2.1 The results of asymmetric adjustment model 5.2 for small and large firms
      5.3.2.2 The estimation results of asymmetric adjustment model 5.2 for surplus and deficit firms
      5.3.2.3 The estimation results of error correction model 5.5

    5.4 CONCLUSION

7. CHAPTER 6 - SUMMARY AND CONCLUSIONS

    6.1 INTRODUCTION
    6.2 FINDINGS AND IMPLICATIONS
    6.3 LIMITATIONS OF THE STUDY
    6.4 RECOMMENDATIONS FOR FURTHER RESEARCH

8. REFERENCES

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