Abstract
The study aims to analyze the financial behavior of the Jordanian pharmaceutical industry companies listed in Amman Stock Exchange (ASE) during the period 2005-2015. The study examines the relationship between funding sources and the Return on Equity (ROE) in order to reach conclusions and to make recommendations to enhance the performance of the Jordanian pharmaceutical industry companies. The Generalized Least Square (GLS) test and Hausman test are used to estimate the fixed effects and random effects model. The random effects model proved to be more suitable for testing the impact of the financial behavior on the profitability of the Jordanian pharmaceutical industry as measured by ROE. The study results showed that the financing through equity has a positive and significance effect on the ROE, which explains the fact that the Jordanian pharmaceutical companies mainly depend on equity financing by 67%. The study recommended that the Jordanian pharmaceutical companies should make an effort to finance its capital increase, assets increase and expansion by financing through equity sources.
Highlights
Intended financial behavior refers to the level of change in the selection of sources of funding whereby funding decisions are among the most important financial decisions made by management to choose the effective and optimal use of available resources
The main objective of this paper is to conduct an analysis of changes in the financial behavior of the Jordanian pharmaceutical companies listed in Amman Stock Exchange (ASE) from 2005 to 2015, by testing the relationship between funding resources and Return on Equity (ROE)
If the capital structure measured by equity to assets, the results showed that a positive effect on return on assets and a negative effect on both return on equity and the earning per share
Summary
Intended financial behavior refers to the level of change in the selection of sources of funding whereby funding decisions are among the most important financial decisions made by management to choose the effective and optimal use of available resources. The sources of funding are divided into equity financing and/or debt financing. The level of change in the financial structure is commensurate with the size of changes imposed by the variations in financial behavior resulting from the disparity of capital requirements. That is where companies are facing many challenges which require a corresponding change in their financial behavior. The changes in financial behavior could lead to either positive or negative consequences on companies
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