The effect of financial policy and capital assets on firm performance: Evidence from service companies listed on the Amman Stock Exchange

Abstract

This study aimed to demonstrate the impact of the financial policy, represented in debt policy and dividend policy, and the capital assets on the financial performance measured by return on equity, total assets turnover and market value added of 53 service companies listed on the Amman stock exchange during the period 2014–2018, using the panel data models. According to the results of testing performed on return on equities (ROE) model, total assets turnover (TAT) model, and market value added (MVA) model, it can be concluded that debt policy has a negative significant effect on market value added and total assets turnover, on the other hand, it has a negative insignificant effect on return on equity. The financial performance of the Jordanian service companies is influenced negatively by the debt ratio as a measure of financial policy; which means service companies are using heavy debt to finance the operating activities, which increases financial cost and the risk of financial failure. The study recommended that service companies can increase the volume of investment in fixed assets to generate high financial performance indicators.