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International Journal of Energy Economics and Policy | Vol 13 Issue 5 2023 1
International Journal of Energy Economics and
Policy
ISSN: 2146-4553
available at http: www.econjournals.com
International Journal of Energy Economics and Policy, 2023, 13(5), 1-11.
Corporate Financial Performance and the Intervening
Role of Energy Operating Costs: The Case of Jordanian
Electricity Sector
Mohammad Aladwan*, Omar Alsinglawi, Omar M. Alhawtmeh, Mohammad Almaharmeh
Department of Accounting, Business School, University of Jordan, Amman, Jordan. *Email: msm_adwan@ju.edu.jo
Received: 30 April 2023 Accepted: 15 August 2023 DOI: https://doi.org/10.32479/ijeep.14591
ABSTRACT
This paper analyzes the impact of ¿nancial performance reported data on market value. The study was conducted on electricity companies for the period
from 2011 to 2021. The study also empirically analysis the intervening role for oil and gas as operating costs on this relationship. The empirical analysis
involved testing the direct effect for company size (total assets [TA]), pro¿tability (return on equity [ROE]), debt (debt ratio [DR]), liquidity (CR) and
oil and gas price (OG-P) as independent variables on market value measured by price to book value as dependent variable. Several statistical test were
used in the study comprise correlation, simple and multiple regression through Ordinary Least Square in order to verify the effect of independent and
mediating variables on the dependent variable. The main ¿ndings based on correlation, simple and multiple regression can be summarized as follows:
independent variables namely ROE, CR and the mediating variable OG-P were found statistically signi¿cant and justi¿ed the change in market value;
other factors TA and DR failed to prove any effect on market value of companies. The oil and gas costs con¿rmed their impact on market value as
single variables effect and joint variable effect.
Keywords: Oil and Gas Costs, Corporate Performance, Return on Equity, CR, Debt Ratio, Total Assets, Mediation
JEL Classications: G03, M41, G04
1. INTRODUCTION
After the oil crisis in 1973, many countries in the world suffered
from the high costs of oil, which was externally imported for
production and service purposes, and similar to all countries
developed countries suffered from this rise in oil prices.
Worldwide, countries are divided into two parts, countries that
export energy sources such as oil and gas and other countries that
import oil and gas, but for rich countries, even with the rise in
prices globally, they were able to cover these costs, while for poor
countries, especially third world countries, the cost of obtaining
oil and gas has become one of their major challenges. In order to
minimize the effect of risen prices many countries succeeded to
¿nd alternatives to oil and gas such as atomic energy coal and solar
energy; but many other countries, especially third world countries
were unable to ¿nd alternative sources for energy that is vital for
continuous of industry, production and transportation, thus they
remained trapped to the control of oil and gas exporting countries.
Traditionally, oil and gas were regarded as the main sources of
energy for companies that works on electricity generation. Due
to the continuous rise in oil and gas costs for these companies
they obligated to increase in electricity prices on citizens and
other companies that operates on electricity; the increase in
electricity prices continues year after year in order to cover the
worldwide increase in oil. The local increase electricity prices
for all production element put a great pressure on government
of¿cials and electricity companies to control this increase that
which became a daily burden to both community and industry.
Despite of government supports to cover a portion of the costs for
IJEEP_14591_aladwan_okey
This Journal is licensed under a Creative Commons Attribution 4.0 International License
Aladwan, et al.: Corporate Financial Performance and the Intervening Role of Energy Operating Costs: The Case of Jordanian Electricity Sector
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International Journal of Energy Economics and Policy | Vol 13 Issue 5 2023
2
imported oil and gas electricity generating companies this support
did not solve the problem which forced electricity companies to
decrease the prices of electricity citizens and industry and hence
bear a large part of the costs; the reduction of electricity prices led
to a decrease in the electricity companies revenues and weaken the
¿nancial performance of these companies, and thus confronted by
large de¿cit and high indebtedness that affected their ef¿ciency
in providing electricity or improving their operations. Although
in many countries electricity companies have adopted new and
different means to produce electricity, such as solar or wind power
but oil and gas remains the main source that generate electricity.
Many of studies and research around the world have discussed
this problem that faced electricity companies and the negative
impact for the imported energy on the performance of electricity
generation companies. Therefore, this study is an attempt to bring
more highlight on problem in emerging countries and provide
suggested solutions to it. Similar to many countries, the electricity
generation sector in Jordan confronted by the crisis of high costs
for oil and gas as power generation resources from the nineteenth of
the last century, which makes companies in this sector bears several
¿nancial dif¿culties represented in the decline in their ¿nancial
results and increase in their indebtedness, the de¿cit in these
companies in 2021 has touched 14 billion dollars. Consequently,
our aim is to shed more light on the ¿nancial results of electricity
generation companies in Jordan and whether there is actual impact
for oil and gas prices (OG-P) on performance of these companies.
The study is motivated by the limited studies that undertaken on
this subject; thus, the study is complementary to any previous
studies on the performance of these companies and try to provide
more recent results on the developments that have been occurred
on performance of these companies. Moreover, the originality of
the study stems from the employment of new ¿nancial indicators
in measuring performance in addition to investigating the joint
role of oil and gas as a mediating factor that strengthen or weaken
the relationship among performance metrics and market value. It
is expected that the study will produce results of great bene¿t to
power generation companies and of¿cial authorities and provide
conclusions and solutions that help these companies adopt future
strategies that improve their ¿nancial performance.
The study consists of the following sections: After the introduction,
the second section for the literature review, in the third section
the methodology of the study, its tool and measurement of
variables, the fourth section will be devoted to the results and
their discussion, while the ¿fth and ¿nal section will be for the
conclusions and recommendations.
2. LITERATURE REVIEW
The ultimate goal that companies are founded for is continuity
or survival, this can only be only achieved by realization of
satisfactory revenues for owners and investors, such revenues are
mirrored in the value of the company by its share market prices;
Therefore, companies with high market value grati¿es the existing
owners and attracts potential investors (Setiawan et al., 2021).
Moreover, appropriate market returns and reassure to lenders the
stable ¿nancial position of these companies and encourages them
to provide loans to these companies for growth purposes and to
pay their obligations (Saleem and Rehman, 2011; Endri, 2019).
Historically, previous studies (Son and Lestari, 2016; Paramitha,
2020; Mahendra et al., 2012; Fadli et al., 2017; Amijaya et al.,
2016; Puspita and Siswanti, 2021; Fajaria, 2018; Hirdinis, 2019;
Thuraisingam, 2015; Fachrudin and Ihsan, 2021; Thinagar et al.,
2019; Alghifari et al., 2022) have proven that there are many
factors that affect the value of the company, from these factors
the pro¿tability of the company, which is the pro¿t that the
company achieves annually as a result of their regular operation
after utilization of their available resources in normal course of
action; from the another factors that greatly impact market value
is the level of liquidity of the company represented in monetary
resources that enables business to meet its short and long term
commitments. Other important factor that inuence the value of
the company is the size of its assets, measured by its ¿nancial
and non-¿nancial resources that the company possesses. Another
signi¿cant element that affect the value of the company is the
percentage of capital structure, which represents how ef¿ciently
a company uses debt to raise its ¿nancial results, which is known
as ¿nancial leverage.
The market assessment of business is recognized as the real value
of the company’s price in the market from the point of view of the
owners (Tarus et al., 2014). Market value of the business can be
measured by the total value of the company’s shares in the ¿nancial
market, thus in ef¿cient markets any a rise in the company’s shares
indicates an increase in its value and on the contrary, the decrease
in these prices indicates a decrease in the value of the company.
In accounting and ¿nance literature researchers and ¿nancial
analysts have employed different measures to determine the value
of the company in the market, some of them used the market share
price, others used the market value of the share compared to the
book share price, some researchers also suggested the use of return
per share, while other researchers have used other values such as
the value of sales. In this study, price to book value (P-BV) will
be applied as the measure of market value because market share
price data were not available for all the companies under study.
Globally, numerous studies have been conducted in several
countries to examine the inuence of ¿nancial indicators on the
value of ¿rms, some studies used one determinant for market value,
while other studies used other determinants or several determinants
to quantify market value.
In a study conducted by (Paramitha, 2020) on the Indonesian
market to measure the impact of capital structure and liquidity
on the value of company and the mediating role of pro¿tability,
the study found that the structure of capital has a negative impact
on the value of the company as well as liquidity appeared with a
negative impact on the value of the company while pro¿tability
was found to have a positive impact. A similar study steered by
(Rompas, 2014), approved that liquidity has optimistic inuence
on the value of company, and with the same result, the study of Son
and Lestari (2016) appeared, where there found a positive impact
of liquidity on the company’s ¿nancial performance and market
Aladwan, et al.: Corporate Financial Performance and the Intervening Role of Energy Operating Costs: The Case of Jordanian Electricity Sector
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International Journal of Energy Economics and Policy | Vol 13 Issue 5 2023 3
value; equally Fadli et al. (2017) con¿rmed the that there is an
important positive impact for liquidity on the value of the company.
Other studies such as Mahendra et al. (2012) reported negative
effect for liquidity on ¿rm value; also Sudiani and Darmayanti
(2016) did not ¿nd any positive effect for liquidity on ¿rm value.
Grounded on the analysis of preceding studies and poetry, the ¿rst
hypothesis can be formulated as follows:
H1: There is no association between liquidity and market value
of Jordanian electricity generation companies.
Pro¿tability indicators such as (ROA) and (return on equity [ROE])
ratios are amongst the main ratios that are used to measure the
improvement of ¿nancial performance, pro¿tability is the net
income accumulated at the end of the ¿nancial period and regarded
from the values that quickly redirected in the value of the company.
From the view point of owner’s pro¿tability indicate the extent
to which the company was able to exploit its resources in various
activities to generate returns. Several studies have recognized the
importance of this ratio in to market value of business, examples
of studies that have found this positive evidence (Hermuningsih,
2012; Amijaya et al., 2016); thus, in order to establish an evidence
for the association between pro¿tability and market value, the
second hypothesis of the study is:
H2: There is no association between pro¿tability and market value
of Jordanian electricity generation companies.
Plenty of preceding studies have shown a strong correlation
between capital structure and market value of company. Capital
structure is ¿g ured by the percentage of debt to equity, in ideal
investment world companies to borrow money at low interest
rates to increase the amount of investment so as to raise their
pro¿tability; this additional source of funding from outside the
company boosts pro¿tability to higher by utilizing the money
of others and its known as ¿nancial leverage (Amijaya et al.,
2016; Hermuningsih, 2012; Paramitha, 2020; Paminto et al.,
2016; Komala and Nugroho, 2013; Atidhira and Yustina, 2017;
Alghifari et al., 2022). Nowadays, the high competition in market
led ef¿cient companies to employ any possible sources to promote
its pro¿tability ratios particularly ROE. Regardless the bene¿t of
such policy, borrowing money convey high risks this policy must
be taken in to consideration such as the increase of debt ratio (DR)
to more than one. Due to the importance of ¿nancial leverage in
increasing the value of company our third hypothesis is as follows:
H3: There is no association between capital structure and market
value of Jordanian electricity generation companies.
One of the factors that suggested by many studies for its effect on
market value is the size of the business represented by the total
assets (TA), this factor is one of the indicators quantify the growth
that the company has reached in total resources, although part
the size could include obligations or debts on company, investors
typically feel satis¿ed whenever the size of the company increases
with reasonable and acceptable risks in liabilities side. Many of
studies have revealed a positive impact for the size of company on
its market value or on the market share price (Amijaya et al., 2016;
Hermuningsih, 2012; Son and Lestari, 2016; Fajaria, 2018;
Siswanti et al., 2015; Fachrudin and Ihsan, 2021; Alghifari et al.,
2022; Setiawan et al., 2021). Most of companies always seek to
upsurge their assets that consequently increase the size of working
capital which viewed as the primary source for generating income
that increases the pro¿tability ratios and hence increase dividends
to owners, based on this argument the fourth hypothesis of this
study is as follows:
H4: There is no association between ¿rm size and market value
of Jordanian electricity generation companies.
Many economic sectors, whether productive or service, depend
almost entirely on oil and gas that used as energy for their
operatation. The electricity generation sector is no exception to
these sectors, as electricity generation companies rely mainly on
oil or gas or both to produce electricity in their stations (Bilal
et al., 2021; Zaabouti et al., 2016; Alamgir and Amin, 2021;
Alaali, 2020; Okodua et al., 2022). The costs of purchasing oil or
gas are amongst the most crucial costs annoys these companies,
especially if these companies operate in oil and gas importing
country (Aoki and Kawamiya, 2019). The variability of OG-Ps
globally fundamentally affects these companies’ ¿nancial results,
including the market value of these companies (Abdulkarim et al.,
2020; Agbo and Nwankwo, 2019). There is no doubt that whenever
OG-Ps rise, the operating costs rise, and thus negative impact
is witnessed in the company’s ¿nancial performance especially
in revenues and pro¿tability. In many countries and in light of
the inability of these companies to reect this rise in electricity
prices for consumers they endure a large portion of this surge as
nonrefundable costs that consequently negatively impact ¿nancial
performance (Thinagar et al., 2019; Gao et al., 2018; Wiryono
et al., 2020; Aye et al., 2014; Guidi, 2009). Furthermore, this rise
in oil or gas prices obligates companies to give up a larger part of
their revenues to cover the purchase costs and hence negatively
effects the level of pro¿tability, liquidity and in some situations
pushes these companies to cover these additional costs through
borrowing in high interest rates (Mahboub and Ahmed, 2017;
Nasir et al., 2018). The presence of all these negative effects
for the uctuation of energy prices will undoubtedly affect the
market value of these companies. Based on prior argument our
¿fth hypothesis can be formulated as follows:
H5: There is no association between energy costs and market value
of Jordanian electricity generation companies.
In order to measure the collective impact for all previous factors
together on market value our sixth hypothesis is:
H6: There is no association between ¿nancial indicators and
market value of Jordanian electricity generation companies.
2.1. Electricity Sector in Jordan
Jordan is one of the countries of the Middle East and is located in an
important area in the region it linking North Africa and West Asia,
and from the closest areas to Europe. Jordan had suffered for more
than seven decades from the increase in the size of the population
density due to the continuous migrations from neighboring
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International Journal of Energy Economics and Policy | Vol 13 Issue 5 2023
4
countries. The population in Jordan increased from 1950 to 2023
from 300,000 to more than 11 million, the population increased
more than 30 times. As a result of this increase in population
density besides the economic growth in all sectors, the volume of
electricity consumption has increased to high rates, and in order
to ful¿ll this necessity of electricity usage. Ministry of energy
(MOE) reported that the electricity generation has enlarged about
200%, it increased from 1.2 megawatts in 2000 to 2.65 megawatts
in 2010 and reached 31.68 in 2021 (MOE, 2021).
In Jordan the last statistics reported that there are 13 companies
that contribute in generating electricity; 4 old traditional companies
established after the year1935, the other nine companies recently
established to produce electricity by wind or solar. The main
production of electricity comes from the four old companies that
mainly depend on oil and gas as a source of energy to produce
electricity; these companies produce and distribute electricity to all
Jordanian cities by its distributed stations over many areas near the
consumption sources. In recent years there has become a diversity
of sources for electricity generation to reduce the operating costs
for traditional stations that depend on oil and gas, these new
sources of electricity generation only began after the year 2010 to
generate electricity through solar and wind, but despite this support
from this new types for electricity production the percentage of
electricity generation from solar and wind energy do not produce
more than 5% of the total electricity generated.
The global increase for prices of oil and gas internationally, this has
led to a rise in the costs of electricity production for all companies
that rely on this source to generate electricity. However, although
these companies are supported by the government, but the large
de¿cit that confronted Jordan’s budget caused a decline for the
amount of funding from government to electricity companies,
this problem required an urgent solution or reduction the costs
to electricity sector to assist these companies for production of
electricity to citizens and all business types at reasonable prices.
The recent ¿nancial reports have shown that electricity generation
companies suffer from a large de¿cit and high indebtedness that
threaten their existence and threaten the economy as a whole,
many of economist suggested that these companies must start to
switch its sources of energy from oil and gas to alternative energy
sources such as Oil shale to operate these stations and increase
reliance on electricity produced from solar and wind.
The statistics of the MOE in Jordan, as shown in Figure 1,
indicated that there was an increase in electricity generation in
Jordan from 2000 to 2020 due to the increase in consumption,
which donated to the population increase and migrations from
neighboring countries, especially due to the ¿rst and second Gulf
wars and the war in Syria. This population increase has led to
an increase in market demand for goods, services and water that
which mandated government institutions and companies in the
private sector to increase their demand for electricity to meet this
increase in electricity consumption. This increase in electricity
generation prompted government agencies and companies to
import more oil and gas that enlarged the costs to country budget
and to amounts of operating costs for electricity companies
(MOE, 2021; REA, 2021).
Other statistics that obtained from the MOE that appears in Table 1,
also indicated that there is an annual increase in imported gas by
at least 18% annually, the gas imports from 2000 to 2020 had
increased to about 245%, similarly the imported fuel for operating
power stations increased at an annual rate of by at least 8%, the
statistics also show that the imported fuel increased from 2000
to 2020 by about 260% (the trend of this increase is exhibited in
Figures 2 and 3).
Data in Table 2 show MOE statistics on population consumption
for electricity from 1998 to 2018. When reviewing the evolution
of consumption per capita compared to the average annual income
per capita, the statistics reveals that there is a stability in the annual
consumption per capita despite of the steady rise in annual income;
the annual consumption per capita of electricity uctuated between
minus and plus 2%, and this indicates that the population’s attempt
to rationalize their electricity consumption in order to avoid the
electricity prices increase which inated by more than 200% over
Figure 1: Development of demand on electricity from 2000 to 2020
(source: MOE)
Table 1: Oil and gas imports for electricity from
2000 to 2020
Year Oil Gas
2020 1012 357
2019 940 432
2018 953 409
2017 885 327
2016 877 368
2015 848 335
2014 720 282
2013 685 280
2012 703 288
2011 674 288
2010 307 219
2009 305 234
2008 417 196
2007 380 233
2006 364 182
2005 315 178
2004 100 179
2003 570 171
2002 758 155
2001 647 138
2000 626 133
Source: Author collection from annual bulletins for MOE 2008-2021 . MOE: Ministry
of energy AQ4
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International Journal of Energy Economics and Policy | Vol 13 Issue 5 2023 5
Historically, most of generation for electricity in the Middle East
in general and Jordan in particular began since the forties of
the last century where the only source of energy for electricity
generation was oil that was imported from the Arab Gulf countries;
the dependency for generating stations on oil continued until
the nineties of the last century where the oil prices increased
dramatically to high levels, many of middle income countries
started to use another sources for generation of electricity such
as natural gas because gas prices were less than oil. Moreover,
the quality requirements and environmental issued imposed high
standards for the use of oil therefore many countries worldwide
adopted mixed sources of energy where they used both oil and
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Gaz oil
Figure 2: Imports of oil and gas. Source: Authors
Table 2: Annual income versus electricity share per capita
from 1998 to 2018
Year Annual income
per capita
Electricity share
per capita (KW)
2018 2909 942
2017 2830 996
2016 2801 981
2015 4089 1373
2014 3825 1272
2013 3652 1249
2012 3432 1247
2011 3276 1193
2010 3194 1204
2009 2979 1294
2008 2574 1245
2007 2048 1299
2006 1785 1283
2005 1647 1284
2004 1526 1213
2003 1356 1110
2002 1248 994
2001 1208 996
2000 1173 1015
1999 1168 970
1998 1187 1006
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Figure 3: The trend for importing oil and gas. Source: Authors
20 years (MOE, 1997-2021). Moreover, the need for adaptation
to current situation by community to electricity inated prices,
this mandated household to conserve their consumption level
despite of household income increase by more than 280% from
1998 to 2018, as table show the electricity consumption almost
remained constant, the trend for this adaptation is exhibited in
Figures 4 and 5.
AQ1
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Annual income per capita Annual Electricity share per capita (KW)
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income vs. consumption
Annual income per capita Annual Electricity share per capita (KW)
Figure 4: Trend of annual income versus electricity per capita
(1998-2018). Source: authors
Figure 5: Composition of primary energy supply in Jordan between
2005 and 2018 (source: Sandri et al., 2020)
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3.1. Sample
The study sample entailed the four main traditional companies
that produce electricity in Jordan and the sample consisted
of the ¿nancial statements of these companies for a period
of 12 years, where the total observations were totaled to 48
observations.
3.2. Method, Model and Variables
To order to achieve the objective of the study, that is to verify the
effect of corporate ¿nancial performance on market value and
the mediating role of OG-Ps on this relationship, the following
sequenced methodology steps will be followed:
First: An analysis will be conducted for the descriptive statistics
on the study variables.
Second: A simple regression test will be applied to verify the
individual impact of each independent variable on the market
value of companies.
Third: The simple regression test will be repeated after mediating
the oil and gas role in the simple regression equations.
Fourth: A multiple regression test will be employed to measure
the collective impact for all independent variables together on the
market value of companies.
Fifth: The multiple regression test will be repeated after the oil
and gas variable is entered into the multiple regression equation.
Figure 7 represents the framework of the study.
3.3. The Variables of the Study Measurement
The simple regression for validating the individual correlation
between independent, control and mediating variables with the
dependent variable is assembled in equations from 1 to 5.
Equations from 1 to 4 for simple regression test of study variables:
P-BV t = α + β1 ROE t + Et (1)
P-BV t = α + β1 Log. TA t + Et (2)
P-BV t = α + β1 DR t + Et (3)
P-BV t = α + β1 CR t + Et (4)
P-BV t = α + β1 OG-P t + Et (5)
Table 3: Variables of the study and measurement
Variable name Type of variable Donation Representation Measurement
P-BV Dependent P-BV Corporate ¿nancial performanceMarket price per share\book value per share
ROE Independent ROE Pro¿tability Net income\total equity
TA Independent (control variable) Log. TA Size of ¿rm Log. TA
DR Independent DR Debt level Total debt\TAs
CR Independent CR Liquidity Current assets\current liabilities
OG-P Mediating OG-P Cost of oil and gas The average cost for imported oil and gas
P-BV: Price to book value, ROE: Return on equity, DR: Debt ratio, CR: Credit ratio, OG-P: Oil and gas price, TAs Total assets
gas. The information for the use of different types of sources to
produce electricity is presented in Figure 5; as the ¿g ure show
the use of oil in electricity generation constitutes about 78% of
the total electricity produced companies from 2005 to 2018, in
second place comes the natural gas, where 15% of electricity is
generated by natural gas whilst renewable energy from solar and
wind only participated in approximately about 8% of the total
energy produced in Jordan (Sandri et al., 2020, REA, 2021).
As for the electricity consumption in Jordan; this use was
distributed amongst several sectors, as shown in Figure 6,
the household sector in Jordan consumes 46% of electricity
production, the industrial sector consumes 22% of electricity
production where water sector consumes about 16% of the
electricity produced, the commercial sector consumes 14%, and
the remaining 2% is used to illuminate streets, public areas and
parks (Sandri et al., 2020; Alrwashdeh, 2022).
3. MODEL AND METHODOLOGY
The methodology of the study follows both qualitative and
quantitative analysis with the focus on the quantitative approach;
in the previous sections statistics and a detailed discussion were
given on electricity generation were information was discussed and
analyzed; in the following sections we will verify the impact of
¿nancial performance indicators on the market value of electricity
companies and the mediating role of OG-Ps on this relationship.
The data for the following examinations was collected from the
companies’ bulletins, annual reports and ¿nancial statements
reported in the Amman Stock Exchange on these companies; the
analyzed ¿g ures encompassed the available data for the periods
from 2010 to 2021.
Figure 6: Jordan’s electricity consumption by use between 2005 and
2018 (source: Sandri et al., 2020)
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These ¿rst four equations (1-4) after the ¿rst examination for
individual effect will be repeated with the inclusion for the OG-P to
the equation; this second run for the equations aims to investigate
whether there is an effect for the mediating variable (oil and Gas)
on the four variables, so the new assumed model will be as follows:
P-BV t = α + β1 ROE t + β2 X t + Et (6)
Where X is the OG-P that will intervene all individual relation
for equation from (1 to 4).
The collective effect for all of independent and control variables on
¿nancial performance will be regressed in one formula as follows:
P-BV t = α + β1 ROE t + β2 Log. TA t + β3 DR t + β4 CR t + Et
(7)
Similar to simple regression in order to identify the role for OG-P
on the relationship between the collective effect of all independent
variable and ¿nancial performance, the regression will be repeated
for a second time after the inclusion of OG-P in the formula as
seen in equation 8:
P-BV t = α + β1 ROE t + β2 Log. TA t + β3 DR t + β4 CR t + β5
OG-P t + Et (8)
4. RESULTS AND DISCUSSION
4.1. Descriptive Statistics
The review of descriptive statistics results can provide us with
some useful facts, the presented results in Table 4 indicated
distinctive information, for example, we ¿nd that the value of the
market share compared to its book value (BV-P) ranged between
the value of 1.17 and 4.63 with an average for all companies during
the 12 years about 2.43, this result indicates that the average market
value of companies’ has notable increase during 12 years by 33%.
The results of the size of companies (log. TA) did not approve
any considerable growth during the 12 years, the average growth
of companies did not exceed 6%; this result for the low increase
in size of assets could be attributed to the high operating costs
that companies bear. The other results for descriptive statistics
display a signi¿cant increase in the ROE, the average return
rate for these companies ranged between −11% and 63% with a
general average of 23% annually, where the general increase in
pro¿tability was about 300% during the study period, but despite
the presence of this high percentage of pro¿ts most of it goes to
the government budget and dividends to investors whom did not
translate this increase of return into more investments to increase
the size of companies.
The descriptive results for capital structure (DR) in Table 4
demonstrate an increase in the obligation for companies, where the
lowest value appeared by 64% and the highest value of 94%, and the
rate of liabilities for all companies was 84%, which is a very high
ratio, as we indicated in the theoretical framework that all generating
electricity companies suffer from a large de¿cit and resort most of
the time to borrow from banks to cover many of their operational
costs not for investment purposes. The statistical results for liquidity
of companies (CR) show that it is <2 to 1, the ideal ratio, the average
of liquidity for all companies showed about 0.9, this ratio proves a
continuous de¿cit in the liquidity for these companies. The statistics
for the cost of oil and gas has risen by about 200% in 12 years, where
the lowest cost rate was 37 with a general average of 74, this amount
con¿rms the signi¿cant rise in oil and gas costs for these companies.
4.2. Correlation
Before performing simple and multiple regression tests, a
correlation test was applied amongst the study variables to
explore the initial relationships between these variables and their
signi¿cance. In Table 5 that screen the results of correlation between
these variables, we observe that there is no relationship between
the size of the company measured (log. TA) with the market value
of the company (P-BV), and even if this relationship exists, it is a
negative relationship. On the contrary the correlation results showed
a strong statistical positive correlation between the ROE and the
market value of the company (P-BV), another signi¿cant positive
relationship was approved between the company’s liquidity (CR)
and market value (P-BV). The results for DR and OG-Ps did not
show any signi¿cant correlation with company’s market value.
Among the other relationships shown in correlation results we
notice a negative signi¿cant relationship between the ROE and the
size of the company; furthermore, we ¿nd a positive signi¿cant
correlation between the DR and the size of the company, also a
signi¿cant positive relationship observed between the DR and
the ROE.
Figure 7: Framework of the study Table 4: The descriptive statistics of study variables
(n=48)
??? Minimum Maximum Mean
BV-P 1.1750 4.6384 2.438239
log. TA 8.0403 9.0295 8.589562
ROE −11.5414 63.4780 23.486703
DR 64.8018 94.9692 84.979568
CR 0.5689 1.6114 0.883183
OG-P 37.6700 110.5300 74.170426
Source: Researchers own calculations . TA: Total asset, DR: Debt ratio, CR: Credit ratio,
OG-P: Oil and gas price, ROE: Return on equity, TA: Total asset
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4.3. Simple Regression Results
By reference to simple regression results between the
dependent variable and independent variables in Table 6, we
note the following: The results of the simple regression did not
show any significant statistical effect for the company’s size
(log. TA) on its market value (P-BV), the value of Adjusted
R2 −0.016 while the value of T was −0.529 and the value of
F was 0.280, where all are not significant, but after entering
the price of oil and gas (OG-P) as a modified variable on the
relationship, we find that the value of F has become 3.517
and significant, this indicates that the resulting change in the
company’s market value is due to oil and gas inclusion not
because of the size of assets because the coefficient of log.
TA remain insignificant.
The results of the impact of pro¿tability (ROE) alone on market
value (P-BV) showed an important strong association between
the two variables, the results indicated that 21% of the change
in market value is attributed to the ROE, where the value of
Adjusted R
2 scored 0.217, but after the centering of OG-Ps, the
explanatory ratio for the combined impact of the two variables
on the market value increased by about 34%, the model was valid
before including the (OG-P), but post the inclusion of (OG-P) in
the modi¿ed model the validity decreased by about 14%, F value
declined from 13.72 to 10.48, while deep observation in the model
results we ¿nd that it has become more appropriate and this shows
in the increase of statistical signi¿cance, which became 0.000,
oil and gas has added 8% to the explanatory power the value of
adjusted R
2 witnessed an increase from 0.217 to 0.292. These
results con¿rm the signi¿cant positive impact of both variables
on market value.
The results for the DR effect on market value were found
insigni¿cant similar to the size effect as its explanatory power
was not statistically signi¿cant, but after intervening the oil
and gas variable as another factor accompanying with DR, the
model improved and the result for F value increased from 0.049
to 3.27, but when comparing these results to the values of T for
the two variables in the model, we conclude that the oil and gas
variable is the only variable that inuenced the market value
not the DR, and therefore the DR is excluded from the impact
on the market value.
Also when look over the results related to the impact of the
liquidity ratio (CR) on the market value, we ¿nd that liquidity
Table 5: Correlation matrix for variables of the study
??? P-BV Log. TA ROE DR CR OG-P
P-BV
Correlation coef¿cient 1
Signi¿cant (two-tailed)
log. TA
Correlation coef¿cient −0.191 1
Signi¿cant (two-tailed) 0.199
ROE
Correlation coef¿cient 0.563** −0.326* 1
Signi¿cant (two-tailed) 0.000 0.025
DRCorrelation coef¿cient 0.043 0.299* 0.385** 1
Signi¿cant (two-tailed) 0.772 0.041 0.008
CR
Correlation coef¿cient 0.557** −0.091 0.231 −0.135 1
Signi¿cant (two-tailed) 0.000 0.542 0.119 0.364
OG-P
Correlation coef¿cient 0.230 −0.044 0.038 −0.114 −0.042 1
Signi¿cant (two-tailed) 0.120 0.770 0.800 0.444 0.778
*Signi¿cant at 5%, **Signi¿cant at 1%. P-BV: Price to book value, ROE: Return on equity, DR: Debt ratio, CR: Credit ratio, OG-P: Oil and gas price, TA: Total asset
Table 6: Simple regression results
Variable Adjusted R2t F F‑signicant ∆Adjusted R2 (%) ∆t (%) ∆F (%) ∆F‑signicant
Impact of Log. TA on P-BV
Before including OG-P −0.016 −0.529 0.280 0.599 +600 −35 +1100 0.038
After including OG-P 0.099 −0.0715 3.517 0.038
Impact of ROE on P-BV
Before including OG-P 0.217 3.705 13.726 0.001 +34 −14 −23 0.000
After including OG-P 0.292 3.559 10.488 0.000
Impact of DR on P-BV
Before including OG-P −0.021 −0.222 0.049 0.825 +65 −31 +6500 0.014
After including OG-P 0.090 −0.290 3.273 0.047
Impact of CR on P-BV
Before including OG-P 0.178 3.307 10.937 0.002 +76 +11 −1 0.000
After including OG-P 0.301 3.660 10.903 0.000
Impact of OG-P on P-BV
- 0.108 2.568 6.596 0.014 - - - 0.014
Source: Authors. P-BV: Price to book value, ROE: Return on equity, DR: Debt ratio, CR: Credit ratio, OG-P: Oil and gas price, TA: Total asset
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is one of the variables that have strong statistical impact on the
company’s market value, as the liquidity variable alone has
explained about 18% of changes in market value, adjusted R
2
value=0.178; and after the inclusion of the mediating variable the
OG-P we note that the explanatory power rose to 30%, adjusted
R2=0.301; this result endorses that both of variables liquidity
and OG-Ps have signi¿cant positive impact on market value of
companies.
Further results in simple regression table for determination of the
single impact of OG-Ps on market value, we ¿nd that this effect
is evidenced through the value of adjusted R
2 for (OG-P) that
recorded 0.108, this means that oil and gas alone explained 11%
of the change in the market value of these companies.
4.4. Multiple Regression Results
In order to accumulate more conclusive evidence for the
combined effect of the independent variables on the market
value before and after the influence of OG-Ps, a multiple
regression test was performed. The results in Table 7 (model 1),
before the inclusion for the OG-P; the multiple regression
results show that the only factors that explain the change in
the market value of companies are the profitability of company
(ROE) and liquidity (CR), the other variables namely the size
of the company’s assets (log. TA) and the capital structure (DR)
did not provide any observed effect on the market value. The
explanatory power for the collective impact for all variables
combined was 34%, but reviewing all of results especially T
result we conclude that this percentage is donated only to the
two variables with the statistical significance; other results
such as F value validate the appropriateness of, where the value
of F-value was 6.926 and statistically significant.
To measure the intervening effect for OG-Ps as an intermediate
variable, the multiple regression was repeated and the oil and gas
variable was included in the model. The new results in Table 8
(Model 2) indicate that the model improved in its explanatory
power due to the addition of the oil and gas variable; the adjusted
R2 grown from 0.340 to 0.424 and the validity of the model F value
has increased from 6.92 to 7.77. The inclusion for the oil and gas
variable also caused a decrease in the signi¿cance of the ROE
where T value declined from 3.60 to 3.31 and to an increase in the
signi¿cance of the liquidity (CR), T value risen from 2.61 to 2.98.
Therefore, it can be said that there is a direct impact of OG-Ps
on market value where T value was 2.67 and sig. was 0.011, and
there is also an impact of this factor on other independent factors
(ROE and CR) that explains the change in market value. The other
factors size (log. TA) and capital structure (DR) remain with no
impact on market value of companies.
After reviewing and discussing the results of all statistical test
we can summaries the results and the validation of hypotheses
in Table 9.
5. CONCLUSION
The study was motivated by the need to examine the effect of
reported ¿nancial data provided in ¿nancial statements and annual
reports on market value, moreover, the study constructed to verify
the effect for the mediating role of operating cost represented
by oil and gas oil on the assumed relationship among ¿nancial
metrics and market value of electricity generating companies. The
empirical analysis involved testing the direct effect for company
size (TA), pro¿tability (ROE), capital structure (DR) and liquidity
(CR) as independent variables on market value measured by P-BV.
Table 7: Multiple regression results (model 1)
Model 1 Unstandardized coecients B tSignicant Adjusted R2FSignicant
Constant −2.545 −0.744 0.461 0.340 6.926 0.000
log. TA 0.458 1.066 0.292
ROE 0.025 3.604 0.001
DR −0.016 −0.941 0.352
CR 2.062 2.618 0.012
Dependent variable: P-BV. Source: Calculations. ROE: Return on equity, DR: Debt ratio, CR: Credit ratio, TA: Total asset
Table 8: Multiple regression results (model 2)
Model 2 Unstandardized Coecients B tSignicant Adjusted R2FSignicant
Constant −2.569 −0.804 0.426 0.424 7.779 0.000
log. TA 0.318 0.786 0.437
ROE 0.022 3.317 0.002
DR −0.012 −0.752 0.456
CR 2.198 2.981 0.005
OG-P 0.011 2.672 0.011
Dependent variable: P-BV. Source: Researcher calculations. P-BV: Price to book value, ROE: Return on equity, DR: Debt ratio, CR: Credit ratio, OG-P: Oil and gas price, TA: Total asset
Table 9: Validation of hypotheses
Hypotheses H1 H2 H3 H4 H5 H6
Correlation Accepted Accepted RejectedRejectedRejected-
Simple regression Accepted Accepted RejectedRejectedAccepted -
Multiple regressionAccepted Accepted RejectedRejectedAccepted Accepted for three variables (ROE, CR and OG-P)
Source: Researcher calculations. ROE: Return on equity, CR: Credit ratio, OG-P: Oil and gas price
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The study was inspired by the insuf¿cient research studies that
directed on this issue in middle east countries and particularly in
Jordan after the issuance of several reports on the de¿ciency of
these companies to meet their obligations. The data of the study
collected from several resources such as ¿nancial statements,
annual reports and bulletins from several Jordanian public
institutions such MOE and Electricity Regulatory Commission.
The data covered the period from 2011 to 2021. The empirical
methodology that followed included correlation, simple and
multiple regression in addition to useful graphical charts on the
issue of the study.
After the researchers conducted the necessary statistical tests
to examine the relationships between variables, the results of
these tests reached several important results; in correlation
results; no relationship between was approved between the size
of the company measured by TA with the market value of the
company, while a strong positive and statistically signi¿cant
relationship was found between the ROE, liquidity and market
value of the companies; the DR and OG-Ps showed no impact
on the company’s market value in correlation results. the other
statistical results for simple and multiple regression approved that
the independent variables namely ROE, CR and the mediating
variable OG-P were found statistically signi¿cant and explain
the change in market value of companies; other factors such as
TA and DR were unsuccessful to show their impact on market
value of companies. The oil and gas costs as a mediating variable
established an impact on sole variables direct effect and in joint
variables effect on market value.
In the world of scienti¿c research, there is no study devoid of
determinants, and this study faced several limitations, including
the time period on which the study was conducted, as this study
covered only a period of 12 years and may be in the eyes of some
professionals and researchers the period is too short and that this
study may need longer periods of time. Also, one of the limitations
of this study related to the number of companies in the study
sample which was small, although we included all this type of
companies in the study, but some might argue that if the number of
companies was larger and the sample was greater, the results may
differ and the results may be better generalized. The third limitation
is related to the selected variables for the study; most market value
research donates share price to measure market value, but due the
lack of ¿nancial information for some companies, especially the
market share price, we used market P-BV to measure the market
value. Future research on this topic can develop the study through
the use longer time periods for example more than 20 years, also
future researchers can use other independent ¿nancial performance
measures such as return on investment or quick liquidity ratio, and
other dependent variables to measure market value such as, price
of traded shares, market share or revenues.
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Author Queries???
AQ1: Kindly check the year does not match with the reference list
AQ2: Kindly cite reference in the text part
AQ3: Kindly cite Table 3 in the text part.
AQ4: Kindly check the footnote.
AQ5: Kindly provide column head.
AQ6: Kindly provide missing text.
