FAMILY VALUES, CAPITAL STRUCTURE, AND FINANCIAL PERFORMANCE: EVIDENCE FROM A DEVELOPING COUNTRY

Abstract

The corporate finance literature holds a significant and ongoing dispute about how capital structure affects firm performance. This is true because different companies’ capital structures differ significantly from each other because of several factors, such as ownership structures and company-specific characteristics. Given the uniqueness of Jordanian businesses and the shortcomings of earlier research, the current study investigates the financial performance of family-owned companies in Jordan from the perspective of capital structure. We perform a quantitative analysis of companies in the insurance sector using a panel data method. To solve endogeneity issues, the generalized method of moments model is used. The data cover the period from 2015 to 2021. Financial performance and firm liquidity were positively correlated. Results for the leverage variables and company size, however, are inconsistent. Financial performance was negatively impacted by family-owned businesses’ long-term debt to total assets and debt-to-equity ratios. At the 1% level, there was a positive and significant correlation for DTA. The results of the GMM study also show that all capital structure proxies have a negative effect on the performance of the listed Jordanian non-family insurance companies. Overall, our findings are consistent with those of earlier research. Though, the difference in results between companies and countries produces a unique and novel consequence. Besides the empirical results, policy implications and recommendations for future research are presented in this study.