Petra University
Faculty of Business
Accounting Department
The impact of firm size on profitability in
Jordanian Services Sectors
Candidate Name: Yousef Wael Abdelghani Alsaheb
Registration number: 201810150
Name of Supervisor: Abdul Rahman Al Natour
This study is provided to complete the requirements of
graduation project in accounting
Second Semester
2020/2021
Abstract
This study aimed to introduce and identify the impact firm size on profitability in Jordanian
services sectors; in which the research has conducted a field study on all Jordanian services;
that gives a total of (20) services companies. A descriptive approach was used and analysis to
process its data statistically, as well as building a search tool, which is a secondary data to
examine the research sample of 20 services companies in Jordan
However, the data indicate that most of the findings of hypothesis are insignificantly relate
to the firm size of the profitability of services companies. The researcher recommended
emphasizing the commitment of Jordanian services companies by reporting return on assets
(ROA) and return on equity (ROE) that could cause future profitability and cash flows to
decline.
Thus, the data indicate that all of the findings of Hypothesis are insignificantly (H1, H2, H3,
H4 and H 5), and one hypothesis which is significantly (H6), relate to the impact of firm size
on profitability in Jordanian Services Sectors.
Chapter One
Introduction
Introduction
The economy in any country depends on the services sector, as the services sector focused
on the size of the company and its profitability on the services companies sector in the Middle
East and Jordan, and the size of the company was considered an essential variable in
explaining the regulation and many studies were tested to find out the impact of the
company’s size and profitability.
The size of the company is a key focus in determining the nature of the relationship within
the company in its operating environment and its aftermath, as well as the growing influence
of multinational corporations around the world. It is a clear example of the importance of
scale and the role it can play in the corporate environment (Babalola, 2013).
The positive relationship between firm size and profitability has been theoretically supported
the concept of economies of scale, and this justification was prominent in Alexander’s earlier
work (1949),Stekler (1964), Hall and Weiss (1967). These studies that have been applied all
over the world, mostly used the return on assets ratio or net profit or both including as
measures of profitability, total assets and total sales, and in some studies the number of
personnel as measures of company size for different periods of time, different sample sizes,
and different company sectors.
The size of the company is the main factor in determining its profitability. The modern
concept of economies of scale indicates that items or products can be produced at much
lower costs by larger firms (Niresh&Velnampy, 2014). Large companies are more
competitive when compared to smaller companies in areas that require competition (Dogan,
2013).The impact of firm size on corporate service has often been questioned, and at the
same time. The phenomenon of company size continues to increase within external business
environments, and there are more concerns about how a company’s size affects its internal
structures and influences the relationship between them base size of the company,
shareholders and the company as a major variable in explaining the basics the profitability
of the company (Babalola, 2013). The effects of company size on profitability have been
addressed in the current literature and most of these studies have found a significant positive
relationship between company size and profitability (Serrasqueiro et al., 2008; Wu, 2006).
Most services studies focused on the relationship between company size and profitability,
mixed results were found. Neresh and Vilnambi (2014), Dogan (2013), Salha and Abdultar
(2011), found a positive relationship between company size and profitability. On the
contrary, Banchuenvijit (2012) found a negative relationship between firm size and
profitability. Other than the above studies, White (1980) found that firm size has no effect
on profitability. These findings lead to a vague understanding of the impact of company size
on profitability and increased interest in this topic.
Problem Statement
Services sector in all countries has an important effect on economy movements, due to the
essential role played by services for improvement of the overall economic activities, including
out its mediation and its financial activities that are necessary for the economic growth of any
country (Monnin and Jokipii, 2010).
However, services are among the most important financial institutions that invest deposits for
investors to make profits. This profit is calculated as the difference between the interest that
services companies get from borrowers and the interest paid to depositors. Further, the services
companies perform some other activities for their clients, such as banking sector give some
activities as credit services, check cashing, issuance of letters of credit and letters of guarantee,
safe deposit boxes, portfolio management, foreign exchange services, trading of commercial
paper, bank acceptance and underwriting of services instruments (Bendi and D’Agnolo, 2008) .
The importance of the study is due to revealing important information about the performance of
services companies measured by their profitability, the study is also important to review the
relationship between the size of the services companies and Profitability in Emerging Markets
(Jordan).
Services companies present with Corona a new challenge. In the (2020) and (2021) speed
spread of corona virus (COVID-19) has dramatic impacts on services markets in the Jordanian
companies. It has created an unprecedented level of risk, causing investors to suffer significant
loses and many companies is closed in a very short period of time. However, prevents banks
from estimating the full risk premium of environmentally vulnerable firms in a standardized
and comparable format. Thus, this paper aims to propose a new methodology for measuring the
return on assets (ROA) and return on equity (ROE) on total assets and fixed assets of firms to
meet the requirements of the financial sector.
What is the effect total assets on of return on assets (ROA) and return on equity (ROE) in
services firms sector in Jordan?
