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Capital structure decisions and environmental, social and governance performance: insights from Jordan

Hamzeh Al Amosh (Ministry of Education and Higher Education Qatar, Doha, Qatar)
Saleh F.A. Khatib (Azman Hashim International Business School, University of Technology Malaysia, Kuala Lumpur, Malaysia)
Amneh Alkurdi (Faculty of Administrative and Financial Sciences, Aqaba University of Technology, Aqaba, Jordan)
Ayman Hassan Bazhair (Department of Economic and Finance, Faculty of Business Administration College, Taif University, Taif, Saudi Arabia)

Journal of Financial Reporting and Accounting

ISSN: 1985-2517

Article publication date: 1 June 2022

1481

Abstract

Purpose

This study aims to explore the impact of capital structure (CS), including total debts, short-term debt, long-term debt and total shareholder equity, on environmental, social and governance (ESG) performance in the context of Jordan.

Design/methodology/approach

To achieve the study’s objectives, the authors used the content analysis approach and the longitudinal data generated from the annual reports of 51 industrial companies listed on the Amman Stock Exchange for the period 2012–2020.

Findings

The findings show that debt financing enhances ESG performance in all dimensions, while financing by equity did not affect ESG. Consequently, Jordanian companies’ managers are trying to reduce agency costs by investing in ESG activities. In addition, companies are focusing on debt financing instead of equity to achieve their financial as well as nonfinancial goals. This is because the opportunism of new shareholders will likely lead to a focus on maximizing their value at the expense of the broader group of stakeholders, and this will adversely affect companies’ ESG performance. Therefore, debt financing limits shareholder control.

Originality/value

To the best of the authors’ knowledge, this is the first examination of the impact of CS financing choices on ESG performance. Thus, this study has important implications for the decisions of executives, policymakers, shareholders and lenders, as it enables them to better understand the linkage between CS and ESG.

Keywords

Citation

Al Amosh, H., Khatib, S.F.A., Alkurdi, A. and Bazhair, A.H. (2022), "Capital structure decisions and environmental, social and governance performance: insights from Jordan", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-12-2021-0453

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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