Impact of Leverage: The Risks to the Listed Industrial Joint Stock Companies in Jordan Stock Exchange

Yaser Mohd Hamshari, Mohammad

Abstract

This study aims to identify the impact of leverage and its risks to the listed Industrial joint stock companies in Amman Stock Exchange. Through studying the rate of Return on equity, assets, and sales, in addition to the market value of the companies, to determine which is more affected by the leverage. Knowing that, the study population represents some of the listed joint-stock companies of the industrial sector in Amman Stock Exchange for the period during 2015-2018. Hence, the study has concluded to the need of achieving a balance between the internal and external financing sources and investing the available funds so competently. So once the administration desires to obtain new financing, it should maintain its financial structure balance. The higher debt ratio means a higher expected return and greater risk as well. Therefore, choosing the most appropriate debt ratios depends on the preference relationship between the risk and the return. The study found that the risk degree increasingly grows along with the use of the company for the financial leverage, which means the increase of the debts will lead to an increase in the company financial and overall risks. Also, if the financial leverage is not used, the rate of return on assets will equal the rate of Return on equity.