The Impact of Capital Structure on Stock Return: Empirical Evidence from Amman Stock Exchange

Transcription

1 Inernaional Journal of Business and Social Science Vol. 7, No. 9; Sepember 2016 The Impac of Capial Srucure on Sock Reurn: Empirical Evidence from Amman Sock Exchange Wasfi A. Al Salama Assisan Professor of Finance, Ph.D. Deparmen of Banking and Financial Sciences Faculy of Economics and Adminisraive Sciences The Hashemie Universiy, Zarqa, Jordan Haneen H. H. Musafa Maser's Suden Deparmen of Banking and Financial Sciences Faculy of Economics and Adminisraive Sciences The Hashemie Universiy, Zarqa, Jordan Absrac The aim of his sudy is o examine he relaionship beween capial srucure and sock reurn for all indusrial firms lised in he Amman Sock Exchange over he period from ( ) afer conrolling for he raio of he marke value per share o he book value per share, as a proxy of growh opporuniies, he size of firm, he urnover raio, as a proxy of sock liquidiy, earnings per share, and reurn on asses. We use unbalanced panel daa saisical approach for analysis. The empirical resuls suggesed ha here is a saisically significan negaive effec of capial srucure on sock reurn. In addiion, sock liquidiy and reurn on asses have saisically significan posiive effec on sock reurn. Keywords: Capial srucure, Sock Reurn, Indusrial Companies, Panel Daa, ASE. Inroducion Firms have differen sources of funds; borrowing, reaining profis or issuing shares. The righ hand of he balance shee is relaed o he capial srucure by deciding he way of combining beween funds sources. Capial srucure refers o he mixure of deb and equiy and oher sources of funds ha firms' managers use o finance firms' aciviies. When firms' managers decide o choose a cerain mixure of capial srucure, hey make a rade off beween risk and reurn. When firms depend highly on deb o finance heir operaions, he risk of bankrupcy will increase, which makes sockholders o demand higher rae of reurn (Brigham and Ehrard, 2001). In counries where deb ineres is ax deducible, firms prefer all deb o finance heir capial srucure. Highly levered firm is he firm, which uses high amoun of deb in is capial srucure. In conras, unlevered firm is he firm, which does no use deb in is capial srucure a all (Lasher, 2008). Pracical decision makers consider ha equiy is he mos expensive form of raising capial, because shareholders should be compensaed by paying hem reurn in he form of dividends. On he oher hand, deb is he cheaper form of financing because of ax deducible. However, here is no fixed proporion of leverage have o be used in he firm's capial srucure, i differs from firm o anoher according o he kind of firm, secor, counry, size, and some oher variables. Moreover, he decision of choosing cerain proporion of combinaion is one of he mos difficul financial decisions because his proporion will deermine he overall firm's value. However, he value of he firm should be maximized so his proporion should achieve his goal. I is imporan o sudy he firms' capial srucure due o is effec on firms decisions in many fields like: invesmen, producion and employmen (Harris and Raviv, 1991). 183

2 ISSN (Prin), (Online) Cener for Promoing Ideas, USA Moreover, i is so significan o avoid bankrupcy. Ross (1977) argues ha here is a posiive relaionship beween leverage and he probabiliy of bankrupcy. However, here is a posiive relaionship beween equiy ownership and he value of he firm (Pyle, 977). Deermining capial srucure could be useful for minimizing he agency cos ha arises from he possible conflic of ineress beween managers and shareholders, and he possible conflic beween shareholders and deb holders ha could be appeared in he even of defaul. This sudy aims o invesigae he relaionship beween capial srucure and sock reurn for all indusrial firms lised in he Amman Sock Exchange over he period ( ). Sudy Objecives This sudy aemps o achieve he following objecives concerning he relaionship beween capial srucure and sock reurn in he conex of Jordan by examining: The relaionship beween capial srucure and sock reurn. 2. The relaionship beween marke o book raio and sock reurn. 3. The relaionship beween he size of firm and sock reurn. 4. The relaionship beween earnings per share and sock reurn. 5. The relaionship beween reurn on asses and sock reurn. 6. The relaionship beween sock liquidiy and sock reurn. Sudy problem This sudy aemps o examine he relaionship beween capial srucure and sock reurn. Therefore, we focus on invesigaing he relaionship beween capial srucure and sock reurn, which could help managers and policy makers o make he righ decision in deermining he possible deb raio ha maximizes sock reurn. In addiion, he resuls of his sudy could benefi many paries such as invesors in choosing heir invesmens and researchers for improving new research as well as could be a base for furher research. We can do ha by answering he following quesions: 1. Wha is he relaionship beween capial srucure and sock reurn? 2. Wha is he relaionship beween marke o book raio and sock reurn? 3. Wha is he relaionship beween he size of firm and sock reurn? 4. Wha is he relaionship beween earnings per share and sock reurn? 5. Wha is relaionship beween he reurn on asses and sock reurn? 6. Wha is he relaionship beween sock liquidiy and sock reurn? Sudy Imporance The imporance of his sudy comes from he imporance of he relaionship beween capial srucure and sock reurn. There are some sudies examine he relaionship beween capial srucure, size, growh rae, and sock reurn (e.g. Acheampong e al., 2014). However, ohers examine he effec of capial srucure, liquidiy, size on sock reurn (e.g. Bergrren and Bergqvis, 2014). Few sudies were conduced in Jordan examining he relaionship beween capial srucure and sock reurn and is impac on he financial decisions (e.g., Gharaibeh, 2014). Therefore, his sudy could provide valuable informaion o various eniies like managers, researchers, shareholders and invesors. The difference of his sudy from lieraure comes from he large sample of daa hrough including all indusrial firms lised in he Amman Sock Exchange and considering he effec of he financial crises as well. To he bes of auhors' knowledge, here is no sudy in Jordan examine he relaionship beween capial srucure and sock reurn including all variables ha used in his sudy. Furher, his sudy provides recen invesigaions of he research problem and research quesions because i relies on recen period ( ). This sudy could be useful for firms' managers in deermining he bes proporion of deb and equiy ha maximizes he firm's value. In addiion, he resuls of his sudy could be useful for firm managers in aracing new invesors as well as he researchers could based on his sudy for furher research. Lieraure Review Capial srucure has received he aenion of many researchers and many sudies are conduced o examine he effec of capial srucure on sock reurn on boh developed and emerging markes. Some sudies argue ha capial srucure deermines sock reurn (e.g. Bhandari, 1988) while anoher ones argue ha sock reurn deermines capial srucure (e.g. Welch, 2004).

3 Inernaional Journal of Business and Social Science Vol. 7, No. 9; Sepember 2016 Oher sudies show ha capial srucure and sock reurn are simulaneously affecing each oher (e.g. Yang, Lee, Gu, and Lee, 2010). However, some sudies show ha here is no relaionship beween he wo variables (e.g. Modigliani and Miller, 1958). Timan and Wessels (1988) argue ha firms, which heir producs are unique or specialized, have relaively low deb raio, larger firms end o use significanly less shor erm deb han smaller firms. Profiable companies have relaively less deb relaive o he marke value of heir equiy. No variaion in converible deb raios across companies and hey canno suppor he idea ha argues exisence of relaionships beween deb raios and non deb ax shield, expeced growh volailiy or he collaeral value of firm s asses. Deerminans of Sock Reurn Masulis (1983) argues ha financial leverage is one of he mos imporan facors ha explain sock reurn. The resuls reveal a negaive relaionship beween financial leverage and sock reurn. Adami e al (2010) examine he relaionship beween sock reurn and leverage by using 2673 companies lised in he London Sock Exchange over he period ( ). The sudy demonsraes a negaive relaionship beween financial leverage and sock reurn. There is a significan and negaive relaionship beween gearing and reurns when he gearing is he sole independen variable. Managers can enhance he reurn of shareholders by avoiding gearing alogeher, when hey include oher explanaory variables (ax raes and indusry concenraion) gearing remains significan and negaive. When hey esimae reurns wih CAPM, hey find ha companies having higher ax raes earn higher reurns. However, when reurns esimae by Fama French, he resul shows ha when he gearing increase by one percen, reurns fall by When hey use four-facor Carhar model he resuls show a negaive and significan relaionship beween gearing and monhly abnormal reurns. Baradarannia and Pea (2013) examine he effec of liquidiy on sock reurns over he period ( ). The esimaions are obained hrough OLS mehod. They use he following conrol variables: relaive size, liquidiy of porfolio, momen porfolio variable. The resuls show a posiive relaionship beween sock liquidiy and expeced reurn. In addiion, here is a significan relaionship beween sysemaic liquidiy risk and expeced reurn. Uremadu and Efobi (2012) explore he impac of capial srucure and liquidiy on corporae reurns by aking 10 firms in Nigeria over he period ( ). They use OLS including log linear leas squares applicaion for analysis. The resuls show a negaive relaionship beween reurn and value of long-erm deb, raios of long-erm deb o oal liabiliy, and raios of shor-erm deb o oal liabiliy, and raios of shor-erm deb o oal liabiliy; and equiy capial o oal liabiliy. In addiion, here is a posiive relaionship beween profiabiliy and domesic liquidiy rae, raios of long-erm deb o equiy capial and value of shor-erm deb. Ahmad e al (2013) explore he co-deerminans of capial srucure and sock reurn of 100 non-financial companies in he Karachi sock exchange (KSE) over he period ( ). The resuls show ha sock reurn and leverage affec each oher, while liquidiy, growh and profiabiliy have a significan effec on boh leverage and sock reurn. The relaionship beween profiabiliy and financial leverage is negaive bu i affecs he sock reurn posiively, here is a posiive impac of growh on leverage and sock reurn, bu here is a negaive relaionship beween liquidiy and boh financial leverage and sock reurn, finally, he size of he firm has insignifican relaionship wih financial leverage and sock reurn. Acheampong e al (2014) examine he impac of marke size and financial leverage on sock reurn of five companies in manufacuring secor in Ghana for he period ( ). The resuls show a significan and negaive impac of financial leverage on sock reurn and a posiive and significan impac of he firm's size on sock reurn. In addiion, here is a direc relaionship beween he size of radable shares and sock liquidiy; radable shares have a sronger size effec han he non radable shares. For a given level of leverage, small companies generae higher reurns han larger ones, and wih higher decrease of leverage his effec increases. There is decreasing sock price sensiiviy o leverage for large companies, because of he large marke capializaion and highly levered firms; he size effec on sock reurns is limied and very small. Olowoniyi and Ojenike (2013) explore he relaionship beween capial srucure and sock reurn. As a sample, 85 firms lised on he Nigeria Sock Exchange over he period ( ) are aken for analyzing he above relaionship. They use panel co-inegraion approach for analyses. The resuls of heir sudy show ha here is a long-run relaionship beween capial srucure and sock reurn; herefore, aenion mus be paid o he wo variables simulaneously. 185

4 ISSN (Prin), (Online) Cener for Promoing Ideas, USA Chambers e al (2013) examine wheher (β) and he capial srucure among firm-specific facors influencing sock reurn, and find he direcion of his influence. As a sample, 65 indusrial companies raded in he Isanbul Sock Exchange (ISE) for he period ( ) are aken for analysis. Panel daa muliple regression is used for analysis. The resuls show ha here is a posiive effec of (β) and oal deb/marke raio value on nominal and real sock reurn for 3 periods, and a negaive effec of oal deb / marke raio on nominal and real sock reurn over ( ). In addiion, a posiive effec of earnings per share on sock reurns during he period ( ). Finally, oher conrol variables have no saisically significan effec on sock reurn for all periods. Bergrren and Bergqvis (2014) examine he relaionship beween capial srucure and sock reurn by aking 50 Swedish companies over he period ( ). They use muliple regression panel daa for analysis. The resuls show a posiive effec of financial leverage, growh, and liquidiy on sock reurn. However, here is a negaive effec of profiabiliy on sock reurn. In addiion, he size of firm has a significan effec on financial leverage and sock reurn, and finally, volailiy has a significan effec on financial leverage. Gharaibeh (2014) examines he effec of capial srucure and sock liquidiy on sock reurn for a sample of 15 indusrial firms lised in he Amman Sock Exchange over he period ( ). The resul shows a significan bu a weak relaionship beween liquidiy and sock reurn. However, here is insignifican relaionship beween capial srucure and sock reurn. The resuls also show a big difference in variables (sock reurns, liquidiy and capial srucure) because of he naure of each indusry secor. Njoki (2014) examines he relaionship beween capial srucure and sock reurn for a sample of 50 companies lised in he Nairobi Securiies Exchange over he period ( ). The resuls show a posiive effec of financial leverage on sock reurn. The size of firm and profiabiliy has no significan effec on sock reurn. Finally, here is a posiive effec of operaing leverage on sock reurn. Hung e al (2014) examine he deerminans of sock reurn by including all socks lised in he NYSE, AMEX, and NASDAQ over he period ( ). The resuls show ha marke bea has an imporan role in deermining he cross secion of sock reurns in wo momen CAPM he WML-augmened FF model and he Fama-French model, cross secion of sock reurns is also associaed wih size, liquidiy, momenum, and value and he explanaory power of he variables is los over crises periods. Chiang and Zheng (2015) examine he relaionship beween liquidiy and expeced excess reurn in Unied Saes, Canada, France, Germany, Ialy, Japan and Unied Kingdom over he period ( ). Panel daa regression of monhly 20 years daa is used o obain he resuls. The resuls show a posiive relaionship beween marke liquidiy risk and excess sock reurns, while a negaive relaionship beween firm level liquidiy and excess sock reurns. Tahmoorespour e al (2015) examine he relaionship beween capial srucure and sock reurn by selecing firms in 8 counries in he Asia Pacific region over he period ( ). The resuls show ha he effec of capial srucure depends on he naure of indusry and he marke as well. There is a negaive relaionship beween reurn and deb o common equiy in Ausralia, China and Korea. Finally, here is a posiive effec of long-erm deb o common equiy in Ausralia and Korea in he basic maerial indusry. To he bes of auhors' knowledge, here is only one sudy conduced in he conex of Jordan examines he relaionship beween capial srucure, liquidiy and sock reurn (Gharaibeh, 2014). However, here are many differences beween our sudy and he sudy of Gharaibeh (2014). Gharaibeh (2014) uses only wo independen variables ( capial srucure and liquidiy), while we use six independen variables ( financial leverage, earnings per share, firm s size, sock liquidiy, profiabiliy, and he raio of he marke value per share o he book value per share ). The second difference is he size of he sample o be aken; Gharaibeh (2014) akes 15 indusrial firms). However, our sudy akes all indusrial firms lised in he Amman Sock Exchange. The hird difference is he period of he sudy. Gharaibeh (2014) covers he period ( ), while our sudy covers he period ( ) which includes he global financial crises ( ) which ignored in Gharaibeh (2014). Mehodology The populaion and sample of sudy The populaion consiss of all indusrial firms lised in he Amman Sock Exchange over he period ( ), however, he sample varies from year o anoher over ( ) due o using unbalanced panel daa. Some firms are excluded because of he daa availabiliy. We choose indusrial secor because of he following reasons: I is he larges one among indusry secors (in erms of numbers) and he high conribuion of he indusrial secor o Jordanian GDP. 186

5 Inernaional Journal of Business and Social Science Vol. 7, No. 9; Sepember 2016 Source of daa The daa ha used in his sudy o examine he relaionship beween he capial srucure and sock reurn is derived from he Amman sock exchange (ASE) based on he financial saemens (balance shee and income saemen) of he indusrial firms. Saisical approach We use T es for examining he significance of he relaionship beween each independen variable and he dependen one while we use F es for examining he overall significance of he regression model. Enry of daa and he preparaion of variables for analysis as well as he ransformaion of variables are done by Excel. Summary saisics and diagnosic ess as well as he resuls of he simple and muliple regression models are obained by using he saisical sofware packages SPSS and STATA. We use unbalanced panel daa o examine he empirical relaionship beween capial srucure and sock reurn for all indusrial firms lised in he Amman Sock Exchange over he period ( ). Correlaion coefficiens marix is used o find he relaionship beween each independen variable and he dependen one and o check he direcion of he relaionship beween wo independen variables as well. In addiion, correlaion coefficiens marix and variance inflaion facor (VIF) can be used o deec he mulicollineariy beween independen variables (Aseriou and Hall, 2007; Gujarai and Porer, 2010; and Wooldridge, 2013). Variables definiion Dependen variable Sock reurn: Sock reurn is calculaed by aking he naural logarihm of he closing price in he las rading day plus he dividend paid during he year divided by he closing price in he firs rading day for he same year. This can be expressed algebraically as follows: Pi, Di, RETURNi, LN Pi, 1 (1) Where Pi,, P 1, Di, is closing price for he las rading day, closing price for he firs rading day, dividends for firm i in year, respecively? Independen variable Capial srucure: many sudies have examined he relaionship beween he capial srucure and sock reurn. Khan e al (2013) do no find relaionship beween capial srucure and sock reurn while Adami e al (2010) and Uremadu and Efobi (2012) find a negaive relaionship. However, Bergrren and Bergqvis (2014) find a posiive relaionship Capial srucure can be calculaed by he oal liabiliies divided by oal asses. This can be represened algebraically as follows: TLi, LEVi, TAi, Where TLi,, TAi, Conrol variables (2) are oal liabiliies, oal asses for firm i in year, respecively. This sudy examine he impac of he urnover as a proxy of sock liquidiy, he raio of he marke value per share o he book value per share as a proxy of growh, earnings per share, he size of he firm, and profiabiliy as conrol variables. Growh: some sudies show a posiive relaionship beween opporuniies growh and capial srucure Gharaibeh e al (2007). There are some sudies find a posiive relaionship beween growh and sock reurns (e.g., Bergrren and Bergqvis (2014). Growh can be calculaed by dividing he marke value per share o he book value per share. This can be presened algebraically as follows: 187

6 ISSN (Prin), (Online) Cener for Promoing Ideas, USA MVi, MBi, BVi,.. (3) Where; MVi,, BVi, is marke value per share, book value per share for firm i in year, respecively. Firm's Size: some sudies find a saisically significan posiive effec of size on sock reurns (e.g., Gharaibeh e al., 2007). There are some sudies find no saisically significan relaionship beween he size of firm and sock reurn (e.g., Njoki, 2014). The size of firm can be measured by he naural logarihm of he marke capializaion. This can be represened algebraically as follows: SIZEi, LN( MCi, ). (4) Where MCi, is marke capializaion for firm i in year. Earnings per share: Some sudies show a relaionship beween sock reurn and earnings per share (e.g. Chambers e al., 2013). Earnings per share can be calculaed by dividing ne income on he number of shares ousanding. This can be represened algebraically as follows: EPSi, NIi, # Si,.. (5) Where NIi,, # Si, are ne income, and number of shares ousanding for firm i in year, respecively. Profiabiliy: some sudies show a negaive relaionship beween profiabiliy and sock reurn (e.g. Bergrren and Bergqvis, 2014), however, oher sudies find a posiive and significan relaionship beween profiabiliy and sock reurn (e.g. Gharaibeh e al., 2007; and Alnajjar, 2014). On he oher hand, oher sudies find no relaionship beween sock reurn and profiabiliy (e.g. Njoki, 2014). Profiabiliy can be measured by he reurn on asses (ROA), which can be calculaed by dividing ne income on oal asses. This can be represened algebraically as follows: NIi, ROAi, TAi, (6) Where; NIi,, TAi, are ne income and oal asses, for firm i in year, respecively. Liquidiy: Some sudies show a significan bu a weak relaionship beween sock liquidiy and sock reurn (e.g. Gharaibeh, 2014). Ohers demonsrae a posiive and significan relaionship beween sock liquidiy and sock reurn (e.g. Bergrren and Bergqvis, 2014; and Chiang and Zheng, 2015). Sock liquidiy is measured by urnover raio, which can be calculaed by dividing he number of shares raded over he number of shares ousanding. This can be presened algebraically as follows: # TSi, TURNi, # OSi, (7) Where; #TSi,, #OSi, are he number of shares raded and he number of shares ousanding for firm i in year, respecively. Sudy Hypoheses The following hypoheses are formulaed o answer he quesions of his sudy: H01: There is no saisically significan effec of capial srucure on sock reurn. H02: There is no saisically significan effec of he marke o book raio on sock reurn. H03: There is no saisically significan effec of size of he firm on sock reurn. 188

7 Inernaional Journal of Business and Social Science Vol. 7, No. 9; Sepember 2016 H04: There is no saisically significan effec of earnings per share on sock reurn. H05: There is no saisically significan effec of profiabiliy on sock reurn. H06: There is no saisically significan effec of sock liquidiy on sock reurn. Based on he models ha have been developed by Berggren and Bergqvis (2014), Uremadu and Efobi (2012), Acheampong e al (2014), and Olowoniyi & Ojenike (2013), we developed he model of his sudy on he way ha explains he relaionship beween capial srucure and sock reurn including some variables, which will be more valuable o reach he sudy objecives. RETURNi, 0 1TURNi, 2MBi, 3EPSi, 4SIZEi, 5LEVi, 6ROAi, 7DUMi, Ei, Where: RETURN, TURN, MB, EPS, SIZE, LEV, ROA, DUM denoe sock reurn, urnover raio, marke o book raio, earnings per share, he size of firm, financial leverage, reurn on asses, and dummy variable, respecively. E : random error, i : firm, : year, (s) : parameers. Empirical Resuls and Discussion Before saring discussing he resuls and acceping or rejecing he hypoheses of his sudy. I is worh o check if he daa are ready for analysis and showing he reliabiliy of resuls. We can do his ask by using he diagnosic ess such as he correlaion marix as well as he variance inflaion facor (VIF) o show wheher here is a perfec correlaion among independen variables. Furher, Durbin-Wason can be used for checking auocorrelaion problem among errors. Diagnosic ess In his secion, we presen he correlaion coefficiens beween he explanaory variables o show he direcion and he srengh of he relaionship beween any pair of explanaory variables as well as he explained variable by using correlaion marix. If he correlaion coefficien is more han 0.7, hen here is an evidence of he exisence of he Mulicolineariy problem. However, if he correlaion coefficien is less han 0.7, hen here is no Mulicollineariy problem (Aseriou and Hall, 2007; Gujarai and Porer, 2010; and Wooldridge, 2013). Table 1: Correlaion marix TURN MB EPS SIZE LEV RETURN ROA (8) TURN MB EPS SIZE LEV RETURN ROA

8 ISSN (Prin), (Online) Cener for Promoing Ideas, USA Table (1) presens he correlaion coefficiens among he variables ha used in his sudy. As can be seen from he above able ha he correlaion coefficien suggess no Mulicollinieriy problem, where is no correlaion coefficien greaer han (0.70). Variance Inflaion Facor (VIF) is anoher way for esing he exisence of mulicollineariy problem. In oher words, deecing wheher here is mulicollineariy or no. (VIF) measures how much collineariy can increase he variance of an esimaed regression coefficien. The cu-off poin for (VIF) is 10 (Aseriou and Hall, 2007; Gujarai and Porer, 2010; and Wooldridge, 2013). Table 2: Variance inflaion facor (VIF) Variable VIF 1/VIF EPS ROA SIZE LEV TURN MB DUMM As can be seen from Table (2) ha here is no exisence of he mulicollineariy problem among he variables ha used in his sudy where he larges (VIF) is for he earnings per share ( EPS ) which is equal o (2.37) which is far smaller han 10, while he smalles ( VIF ) is for dummy variable which is equal o (1.02). Durbin Wason is a es used for deecing he auocorrelaion beween errors, his es known as Durbin-Wason d saisic; i is he raio of he sum of squared differences in successive residuals o he RSS. This saisic has a very imporan advanage because i is based on he Ordinary Leas Square (OLS) residuals ha are compued by mos regression packages. The value of coefficien of auocorrelaion mus lie beween 0 and 4. If he calculaed value of d equals zero hen here is an evidence of posiive auocorrelaion. If i equals 4, here is an evidence of negaive auocorrelaion and if i is close o 2 he more he evidence ha here is no auocorrelaion (Aseriou and Hall, 2007; Gujarai and Porer, 2010; and Wooldridge, 2013). Table 3: Model Summary Model R R Square Adjused R Square Sd. Error of he Esimae Durbin-Wason a Table (3) can be used o es he auocorrelaions among residuals. As can be seen from he above able, he value of Durbin-Wason of is close o wo, so here is no dependency beween variables indicaing ha here is no auocorrelaion beween residuals (Aseriou and Hall, 2007; Gujarai and Porer, 2010 ; and Wooldridge, 2013). Summary saisics Mean VIF 1.50 This secion presens he mean, sandard deviaions, minimum and maximum for all independen variables and he dependen one, which are used in his sudy. 190

9 Inernaional Journal of Business and Social Science Vol. 7, No. 9; Sepember 2016 Table 4: Summary Saisics Variable Obs Mean Sd. Dev. Min Max TURN MB EPS SIZE LEV RETURN ROA Table (4) presens a summary saisics for he variables included in he model, which are sock reurn, urnover raio, he raio of he marke value per share o he book value per share, earnings per share, he size of he firm, he reurn on asses, and financial leverage. Sock reurn is he dependen variable where is mean is , i has a sandard deviaion, measures he amoun of variaion among firms, of indicaing ha he indusrial firms in Jordan vary regarding heir sock reurns. The highes value of sock reurn is and he lowes one is Turnover raio is he firs explanaory variable, ranges from 000, indicaing ha here is no rading a leas for one firm in one year over he period of sudy, o abou Whereas is mean is abou and sandard deviaion is abou The raio of he marke value per share o book value per share is he second explanaory variable. I ranges from abou -14 o abou 500. Whereas is mean is abou 2.31 and sandard deviaion is abou The hird predicor variable is earnings per share, i ranges from abou , showing ha some firms suffering from losses, o abou Whereas is mean is abou 0.076, and sandard deviaion is abou The size of he firm is he fourh independen variable, which ranges from abou 5.7 o abou 9.5 wih a mean of 7.06 and a sandard deviaion of Showing a variaion among indusrial firms lised in Amman Sock Exchange over he period of sudy ( ) in heir sizes where we can find small firms and large firms in he sample of sudy. Reurn on asses (ROA), a proxy of profiabiliy, is he fifh independen variable, which ranges from abou -0.96, indicaing ha some firms suffering from losses, o abou wih a mean of and a sandard deviaion is abou The las explanaory variable is leverage (LEV) which ranges from abou 0.003, indicaing ha some firms don based highly on deb o finance heir operaions, o abou 1.79 whereas is mean is abou indicaing ha of he capial srucure of he majoriy of indusrial firms in Jordan is based on deb, and he sandard deviaion is abou.226. I appears from Table (1) ha he highes correlaion coefficien is beween reurn on asses (ROA) and earnings per share (EPS) which is equal o 0.664, which is srongly posiive, followed by he relaionship beween he size of he firm and earnings per share (EPS) which is equal o , which is srong posiive. The hird highes correlaion coefficien is beween reurn on asses (ROA) and he size of he firm, which is equal o 0.484, which is srong posiive. The lowes value of correlaion reach beween he raio of he marke value per share o he book value per share (MB) and he size of he firm which is posiive, followed by which is beween he raio of he marke value per share o he book value per share ( MB) and urnover (TURN) which is negaive. Table (3) shows ha abou 0.14% of he variabiliy in he sock reurn can be explained by he linear relaionship beween (urnover, earnings per share, profiabiliy, marke o book raio, leverage, and size ) and sock reurn, while 86% of he variabiliy in sock reurn caused by exernal facors. 191

10 ISSN (Prin), (Online) Cener for Promoing Ideas, USA Hausman es used o es which model ( fixed or random ) effec is suiable for analysis where failing o rejec he null hypohesis indicaing ha he random effec model is appropriae for analysis, however, rejecing he null hypohesis implying ha he fixed effec model is appropriae for analysis.. hausman fixed random Table 5: Hausman es Coefficiens (b) (B) (b-b) sqr(diag(v_b-v_b)) fixed random Difference S.E. TURN MB EPS SIZE LEV ROA DUMM b = consisen under Ho and Ha; obained from xreg B = inconsisen under Ha, efficien under Ho; obained from xreg Tes: Ho: difference in coefficiens no sysemaic chi2(7) = (b-b)'[(v_b-v_b)^(-1)](b-b) = 5.27 Prob>chi2 = As we can see from he above able, he (p) value of is greaer han he significance level of 5%, so he random model is he appropriae one. 192

11 Inernaional Journal of Business and Social Science Vol. 7, No. 9; Sepember 2016 Regression Resuls Table 6: Regression coefficiens Random-effecs GLS regression Number of obs = 522 Group variable: ID Number of groups = 69 R-sq: wihin = Obs per group: min = 2 beween = avg = 7.6 overall = max = 8 Wald chi2(7) = corr(u_i, X) = 0 (assumed) Prob > chi2 = RETURN Coef. Sd. Err. z P> z [95% Conf. Inerval] TURN MB EPS SIZE LEV ROA DUMM _cons sigma_u 0 sigma_e rho 0 (fracion of variance due o u_i) Table (6) shows he esimaion resuls of he sudy model. The resuls indicae a saisically significan negaive effec of leverage on sock reurn wih a coefficien of This resul suppors he signaling heory which saes ha he increasing of deb raio in firm's capial srucure hrough borrowing send a posiive signal o is invesors ha he firm borrows money o expand is operaions in a profiable projecs, which in urn leads o decrease he defaul risk and decline he reurn required by invesors. Suggesing ha 1 uni increase in leverage would have a decrease abou percen in sock reurn, oher hing remaining consan. This finding is consisen wih he resuls of he sudy of Acheampong e al (2014), Masulis (1983), Uremadu and Efobi (2012), Koreweg (2004) and Adami e al (2010). However, inconsisen wih he resuls of he sudy of Fama and French (1992), Ahmad e al (2013), Njoki (2014), Bergrren and Bergqvis (2014) which indicae a saisically significan posiive relaionship beween leverage raio and sock reurn. 193

12 ISSN (Prin), (Online) Cener for Promoing Ideas, USA The resuls indicae a highly saisically significan posiive effec of urnover on sock reurn wih a coefficien Suggesing ha a 1 uni increase in urnover raio (TURN) would have an increase abou percen in sock reurn, oher hings being consan. For indusrial firms lised in he Amman Sock Exchange he higher he urnover raio, he higher he sock reurn. This finding is consisen wih he resuls of he sudy of Baradarannia and Pea (2013) while inconsisen wih he resuls of he sudy of Ahmad e al (2013) sudy, which indicaes a negaive impac of sock liquidiy on he sock reurn. This resul could be because he highly liquid sock could make invesors o ask a high rae of reurn o sell heir socks. Table (6) shows he esimaion resuls of he sudy model. The resuls indicae a saisically insignifican effec of MB raio on sock reurn wih a coefficien of This finding is inconsisen wih Ahmad e al (2013), Hung e al (2014) which indicae an imporan role of MB on sock reurn. The resuls indicae a saisically insignifican effec of he size of he firm on sock reurn wih a coefficien of This resul is consisen wih Njoki (2014). However, his finding is inconsisen wih Acheampong e al (2014); Ahmad e al (2013), Bergrren and Bergqvis (2014); and Hung e al (2014). Table (6) shows he esimaion resuls of he sudy model. The resuls indicae a saisically insignifican effec of earnings per share on sock reurn wih a coefficien of This resul is inconsisen wih he resuls of he sudy of Chambers e al (2013) who find a posiive effec of earnings per share on sock reurn during he period ( ). The resuls indicae a highly saisically significan posiive effec of reurn on asses (ROA) on sock reurn wih a coefficien of Implying ha 1 uni increase in reurn on asses (ROA) would have an increase abou 1.10 percen in sock reurn. This resul is in line wih he resuls of he sudy of Bergrren and Bergqvis (2014). Invesors hold heir sock and require a high rae of reurn if hey wan o sell hem because increasing profiabiliy leads o decline he defaul risk for poenial invesors. Dummy variable is insignifican indicaing ha he sock reurn for indusrial firms lised in he Amman Sock Exchange (ASE) doesn affeced by global financial crises ( ). In oher words, here are no differences in erms of sock reurn for indusrial firms lised in he Amman Sock Exchange (ASE) during and afer he crises. The reasons behind his resul could be ha he Jordanian economy is very small comparing wih he global economy or could be need more ime o be affeced. Summary, Conclusions, and Recommendaions Summary Deermining capial srucure has a direc relaionship wih sock reurn, so i influences he financial decisions of managers especially in deermining he suiable mixure of deb and equiy o finance long-erm invesmens. I also has a vial role in minimizing he agency problem ha migh be arises beween managers and shareholders. Capial srucure is relaed o pas marke and book values (Baker and Wurgler, 2002). Capial srucure plays an imporan role in he performance of he firm, is growh, and he survival of he company (Ahmad e al., 2013). This sudy aims o examine he effec of (capial srucure, sock liquidiy, marke o book raio, reurn on asses, firm's size and earnings per share) on sock reurn for all indusrial firms lised in he Amman Sock Exchange (ASE) by using unbalanced panel daa. Moreover, his sudy will conribue o he lieraure by filling he gap in he previous sudies hrough including he above menioned variables and o examine he effec of hem on sock reurn in emerging markes (Jordan). Conclusions Following are he essenial conclusions reached hrough he research empirical analysis: The empirical resuls sugges ha here is a negaive and significan relaionship beween capial srucure and sock reurn. The resuls also repor a highly significan and posiive relaionship beween boh (urnover and reurn on asses) and sock reurn. The size of he firm and he marke o book raio have a posiive bu insignifican relaionship wih sock reurn. Finally, here is a negaive bu insignifican impac of earnings per share (EPS) on sock reurn. Recommendaions Based on he resuls of sudy, we provide he following recommendaions: Indusrial firms in Jordan need o use less leverage in heir capial srucure o make a higher sock reurn. 2. To increase he sock reurn, he firm needs o have more liquid asses. 3. Firms' managers need o pursue a policy o expand he profis of heir firms o increase he sock reurn.

13 Inernaional Journal of Business and Social Science Vol. 7, No. 9; Sepember 2016 Sudy limiaions and fuure exensions There are some limiaions faced his sudy. The mos imporan limiaion is no enough ime o sudy a longer period and o examine all secors of indusry. Based on he resuls of his sudy, we recommend some avenues for fuure researches: 1. Fuure research need o expand he sample of daa by expanding he period of sudy in order o examine he relaionship beween sock reurn and oher variables which included in his research. 2. Fuure researches need o examine he impac of more explanaory variables on sock reurn such as marke reurn, angibiliy, axes and macroeconomics variable like inflaion, growh in GDP, and moneary policy. References Acheampong, P., Agalega, E., & Shibu, A. (2014). he Effec of Financial Leverage and Marke Size on Sock Reurns on he Ghana Sock Exchange: Evidence from Seleced Socks in he Manufacuring Secor. Inernaional Journal of Financial Research, 5 (1), Adami, R., Gough, O., Muradoglu, G., & Sivaprasad, S. (2010). Reurns And Leverage. Oxford Business & Economics Conference Program, June 28-29, London. Ahmad, H., Fida, B., & Zakaria, M. (2013). The Co-deerminans of Capial Srucure and Sock Reurns: Evidence from he Karachi Sock Exchange. The Lahore Journal of Economics, 18(1), Alnajjar, M. (2014). Deerminans of Capial Srucure in Jordan Indusrial Secor. Global Journal of Managemen and Business Research, 14 (2), 1-9. Aseriou, D., & Hall, S. (2007). Applied Economerics: A modern Approach Using Eviews and Microfi, Revised Ediion. Baker, M., & Wurgler, J. (2002). Marke iming and capial srucure. Journal of Finance, 57 (1), Baradarannia, M., & Pea, M. (2013). Liquidiy and expeced reurns-evidence from Inernaional Review of Financial Analysis, 29, Berggren, S., & Bergqvis, A. (2014). Capial Srucure and Sock Reurns-A sudy of he Swedish large cap companies. Unpublished Bachelor Thesis, Universiy of Gohenburg. Bhandari, L. (1988). Deb/Equiy Raio and Expeced Common Sock Reurns : Empirical Evidence. The Journal of Finance, 43 (2), Brigham, E., & Ehrhard, M. (2001). Financial managemen heory and pracice, enh ediion, Souh-Wesern College Pub. Chambers, N., Sezgin, F., & Karaaslan, B. (2013). An Analysis of he Effecs of Capial Srucure and he Bea Coefficien on Sock Reurns: A Case Sudy of he Isanbul Sock Exchange (ISE)-Manufacuring Indusry. Inernaional Journal of Business and Social Science, 4(7), Chiang, T., & Zheng, D. (2015). Liquidiy and sock reurns: Evidence from inernaional markes. Global Finance Journal, 27, Fama, E. F., & French, K. R. (1992). The cross-secion of expeced sock reurns. The journal of finance, 47 (2), Gharaibeh, A. (2014). Capial srucure, Liquidiy, and Sock reurns. European Scienific Journal, 10 (25), Gharaibeh, H., & Alnajjar, B. (2007). Deerminans of Capial Srucure: Evidence from Jordanian Daa. Jordan Journal of Business Adminisraion, 3 (2), Gujarai, D., & Porer, D. (2010). Essenials of economerics, Fourh Ediion. Harris, M., & Raviv, A. (1991). The Theory of Capial Srucure. The Journal of Finance, 46 (1), Hung, C., Azad, S., & Fang, V. (2014). Deerminans of sock reurns: Facors or sysemaic co-momens? Crisis versus non-crisis periods. Journal of Inernaional Financial Markes, Insiuions & Money, 31, Khan, W., Naz, A., Khan, M., Khan, W., & Ahmad, S. (2013). The Impac of Capial Srucure and Financial Performance on Sock Reurns: A Case of Pakisan Texile Indusry. Middle-Eas Journal of Scienific Research, 16(2), Koreweg, A. (2004). Financial Leverage and Expeced Sock Reurns: Evidence from Pure Exchange Offers. Unpublished working paper, Universiy of Chicago. 195

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