The Effect of Weighted Average Cost of Capital (WACC) on Financial Performance

Abstract

This study aimed at investigating the effect of Weighted Average Cost of Capital on financial performance in the industrial companies listed on Amman stock exchange in the presence of the control variable (firm size), which was measured by the natural logarithm of the total assets, where the weighted average cost of capital was measures by (Cost of debt, and Cost of equity), and financial performance was measured by Return on assets. In order to achieve the objectives of this study, the descriptive analytical approach was adopted. Where the study population was the industrial companies listed on the Amman Stock Exchange (63), and the study was applied to a sample of the companies (56) companies to which the terms of the intentional sample were applied. The multiple regression models were used to test the study hypotheses.

The study found that there is an effect of the weighted average cost on the financial performance of the public shareholding industrial companies listed on Amman stock exchange in the presence of the size of the company, and the effect of both the cost of debt and the cost of equity on the financial performance of public shareholding industrial companies listed on Amman stock exchange.

The study made many recommendations, the most important of which was: there is a need to pay more attention to the weight average cost of capital by Amman stock exchange, trying to compel companies listed on Amman stock exchange to disclose their weight average cost of capital in their financial statements along with other indicators, with an explanation of the reasons for the changes that occur to it whether by increasing or decreasing from one year to another in order to serve the different economic decision-makers in evaluating their financial performance..