The Effect of Equity Financing Structure and Asset Utilization Efficiency on Financial Fragility

Abstract

The current study aimed to test the effect of the equity financing structure and asset utilization efficiency on the financial fragility of a sample of 23 industrial companies listed on the Amman Stock Exchange for the period of 2016–2021 using the random sampling method. The descriptive-analytical method was deployed in this study. Besides, E-views software was used to test the study hypotheses. The study concluded that a negative and statistically significant effect of equity financing structure (common stock financing ratio and retained earnings financing ratio) on financial fragility. Furthermore, a negative and statistically significant effect of asset utilization efficiency, as measured by the (actual growth rate), on financial fragility. Therefore, the study recommends that industrial companies consider the Minsky index to determine the degree of financial fragility and avoid it. In addition, relying on their equity financing while making the appropriate financial decisions for optimal diversification between financing sources.