Type of the article: Research Article
Abstract
This study examines the relationship between governance quality, leverage, and firm performance and financial distress in Jordanian industrial companies listed on the Amman Stock Exchange (ASE). The industrial sector was chosen for this study due to its capital-intensive nature, reliance on external funding, and ongoing operational and market challenges in Jordan. The sample consists of 474 observations from 2014 to 2022. The quality of governance is represented by board size and board independence, leverage is represented by the debt-to-assets ratio, and firm performance is represented by gross margin. For financial distress, the integrated logit model indicates that board size is not statistically significant (coefficient = 0.078, p = 0.361), and the board independence is also not statistically significant (coefficient = 2.341, p = 0.076). Leverage, on the other hand, has a positive and significant association with financial distress (coefficient = 3.560, p = 0.001), while gross margin is negatively and significantly associated with financial distress (coefficient = –9.614, p < 0.001). The results suggest that financial distress for Jordanian industrial firms is primarily attributed to financing pressure and operating performance, and that the governance proxies used in this study do not adequately explain financial distress.
Acknowledgment
This research was funded through the annual funding track by the Deanship of Scientific Research, from the vice presidency for graduate studies and scientific research, King Faisal University, Saudi Arabia [Grant No. KFU263483].