Financial Crime World

Jordan’s Financial Underbelly: Corruption and Capital Structure Exposed

A recent study has uncovered the alarming extent of corruption in Jordan, revealing its far-reaching impact on the country’s business landscape. The investigation analyzed 80 non-financial companies listed on the Amman Stock Exchange (ASE) between 2013 and 2022, exposing a telling link between corruption levels and the capital structure of these firms.

Corruption and Capital Structure

According to the findings, every one percent increase in corruption is accompanied by a significant hike in debt-to-equity ratio. The study attributes this response to the shielding theory, where companies take on more debt as a means of protecting themselves from predatory practices of corrupt officials.

Control Variables and Capital Structure

The research employed fixed-effect estimation and generalized method of moment (GMM) analysis on a panel dataset comprising 800 company-year observations. The study revealed significant correlations between control variables and capital structure:

  • Asset Tangibility: Increases in asset tangibility boost capital structure by 3.56%.
  • Firm Size: Larger firms experience a 1.07% increase in capital structure.
  • Inflation Rate: A rise in inflation rate results in a 6.06% boost to capital structure.
  • Gross Domestic Product (GDP): Increases in GDP lead to a 2.143% increase in capital structure.

On the other hand, the study identified Firm Age and Profitability as having adverse effects on capital structure:

  • Firm Age: Older firms experience a -1.46% decrease in capital structure.
  • Profitability: Decreases in profitability result in a -7.3% decrease in capital structure.

Implications and Recommendations

The findings serve as a wake-up call to policymakers, regulators, and corporate leaders alike, highlighting the urgent need for robust measures to combat financial crime and corruption in Jordan. As the country strives to maintain economic stability and attract foreign investment, it is imperative that concrete steps are taken to address these issues head-on.

Conclusion

A culture of corruption is not only undermining trust in Jordan’s business sector but also distorting the very fabric of its economy. The study’s findings underscore the need for a comprehensive approach to tackle financial crime and corruption, ensuring a stable and attractive business environment for investors and stakeholders alike.