An Empirical Investigation of the Trade-Off Theory: Evidence from Jordan

  •  Imad Ramadan    


This study aims to test if the Jordanian industrial listed firms follow the trade-off theory in their funding needs strategy during the period 2000-2014. Utilizing data from a sample of the Jordanian industrial firms, the results show that the inverse relationship between profitability and leverage result is not consistent with the trade-off theory, indicating that more profitable Jordanian manufacturing firms tend to issue more equity and less debt to finance their need of funds. The direct relationship result between firms’ size and leverage is in line with the trade-off theory, indicating that large firms tend to finance their needs of fund through issuing debt rather than equity. As for the growth leverage relation, the result supports the trade-off theory, but the relation is not statistically significant. In summary, The Jordanian manufacturing firms follow the trade-off theory partially, and the industrial sector have an impact on the financing decision.

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