Short Term Impact of Financial Risks and Assets Efficiency on Profit Persistence

Purpose: This study aims to determine whether financial risks and asset efficiency impact the profit persistence in Jordanian industrial companies, and whether it varies between different industrial companies in Jordan or not.

Methodology Design: This study relies on the descriptive analytical method and examines the hypothesis of this paper using the simple linear regression model. This study uses a sample of 41 companies chosen from a population consisting of 54 companies listed in the industrial sector of the Amman Stock Exchange between (2007 – 2016).

Findings: The results showed that, no statistically significant impact of financial risks –measured by liquidity ratios- on the of profit persistence in the short term. The study also showed no statistically significant impact of financial risks –measured by debt ratio- on the profits persistence. This study also, showed no statistically significant impact of Asset efficiency –measured by total assets turnover on the profit persistence. Whereas the study found a statistically significant difference at a level of (0.05≥α) on the profits persistence between the industrial companies.  The findings of this paper helps industrial companies in improving their profit persistence at short term levels.

Originality / Value:  This paper is considered the first to investigate the profits persistence on Jordan industrial companies. The study produced some recommendations of which are; authorities should spread awareness on issues of profit persistence either in the long versus short run. Companies should be forced to report on the level of profits persistence in their governance reports to help investors and other stakeholders determine a company’s ability to maintain current profit persistence.