The Impact of Capital Structure and Cash Holdings on Firm Value: An Empirical Study on Jordanian Industrial Listed Companies

Abstract

This study aimed to analyze the relationship between cash holdings and capital structure and investigate the impact of these two variables on the firm value. The study was conducted on a sample of the Jordanian publicly- held industrial companies registered in Amman Stock Exchange (ASE) over the period (2005-2016). The study used a panel data regression model to study the relationship between capital structure, cash holdings and firm value. The study findings came in line with the results of several previous studies, like Loncan and Caldeira (2014) and Ramadan and Alokdeh (2011). The results of the study revealed a negative relationship between debt and cash holdings, because firms holding more cash would use their cash reserves to finance their projects. The study also found that firm value had a negative relationship with long- and short-term debts. Cash holing, instead, is valued as positive by investors. The study recommended companies to make a balance between cash holding level and capital structure and researchers to conduct further research on other sectors and use other variables.