The Mediating Role of Profitability in the Impact Relationship of Assets Tangibility on Firm Market Value

Abstract

This study aims to investigate whether the asset tangibility of the listed mining and extraction firms at the Amman Stock Exchange institution affects the market value of these firms and whether firm profitability mediates the impact relationship of asset tangibility on firm market value. To achieve the objectives of this study, secondary data covering the period 2013–2022 of the entire listed mining and extraction firms were collected and used in the analysis. Tobin’s Q is used as a good indicator of firm market value, while return on assets is used as a common indicator of firm profitability. Asset tangibility is the percentage relationship of tangible fixed assets to total assets. Employing both the single and multiple linear regression methods, the results showed a significant impact of asset tangibility on firm profitability and firm market value. The results also demonstrated that firm profitability has a significant impact on firm market value. In addition, the results revealed that firm profitability mediates the effect of asset tangibility on firm market value. The empirical findings have important implications when policies that lead to higher firm value are adopted and correctly followed. More research is recommended to investigate this relationship in other industries.

1. Introduction

Investors and other users of financial statements devote too much attention to firm market value. Investors or shareholders normally assume that they will invest, and they postpone their consumption with the expectation of receiving a reasonable future rate of return on their investments. Shareholders receive dividends, but they are also interested in the market value of their investments. Firm market value is a significant concern for investors whenever they are engaged with investment decisions. Investors prefer to invest in corporations with high profitability and an increasing market value.

While investors normally focus on understanding and analyzing select indicators of financial performance, they are more interested in firm market value whenever they need to take an investment decision. Investors and shareholders often focus on firms’ profitability, liquidity, financial position, and market value. Firms with an increasing market value are more attractive to investors because investors expect a higher return on their investments with such firms. The required and actual return is classified into return from dividends and return from capital gains, where the latter results from the increase in the shares’ market value, whether these investments are sold or still held. Therefore, firm market value can be considered among the most important foundations for investors’ decisions.

According to Permatasari and Azizah (2018), the increase in firm market value has a strong impact on investors’ investment decisions. Managers of business organizations are also too interested in their firm’s market value, which is assumed to reflect the financial performance of the firm as well as the effectiveness of its management. Tangible fixed assets are normally acquired and held by manufacturing firms and other business organizations to be used in operations and the production of goods or services, where it is assumed that holding more tangible assets leads to more production, more sales, and, ultimately, more profitability. Several authors have found that profitability has a positive significant impact on firms’ value, including Jonnius and Marsudi (2021), Chen and Chen (2011), Sudiyatno et al. (2021), and others. Tangible fixed assets are used in operations, and most of these tangible assets are subject to periodic depreciation. Therefore, there is a probability that tangible fixed assets will affect firm market value.

While several prior studies have shown that profitability has a significant impact on firms value (such as the works of Novi Mubyarto (2020), Haugen and Baker (1996), Dwaikat et al. (2023), etc.), the following questions remain: the determinants of firms’ value, whether fixed tangible assets play a role in determining the firm’s market value, and whether firms’ profitability mediates the assumed impact of asset tangibility on the firm’s market value. Increasing investment in assets is assumed to improve the financial performance or profitability. Normally, business organizations, especially manufacturing firms, do not acquire a fixed tangible asset without an urgent need for that asset to be used in operations and in the production of goods and services. Sometimes, as technology develops, firms attempt to dispose of an asset in order to acquire a more developed asset that can increase their productivity or improve the quality of their products, or to simplify the production process.

The problem of the present study seems apparent: Most business organizations in Jordan, including manufacturing firms, are in difficult financial situations at present, especially in the wake of the COVID-19 pandemic, which has affected people all around the world since the beginning of 2020. Manufacturing firms in the Middle East, including firms that are working in Jordan, have also experienced increased financial difficulties because of the war taking place in the region. Therefore, the listed manufacturing firms, along with other non-manufacturing firms, are facing financial difficulties and a decline in market value. Most authors, academics, and practitioners believe that profitability is the most important driver of firm market value, but it is not the only variable affecting firm market value. Owning more tangible assets means more investments, which can be expected to generate more return. Most tangible assets (including land, buildings, machines, equipment, etc.) are expensive, and their value declines as a result of usage and obsolescence. Assets with liabilities determine the financial position of firms, which is among the most important factors affecting their value. As a result, investing in tangible assets is questionable because these assets must be acquired and owned, and they are subject to depreciation expense. Jordan’s mining and extraction sector is of great importance because of the various resources available in the country, such as phosphate, potash, and cement, in addition to the mineral resources available in the Dead Sea. In 2020, the mining and extraction sector contributed 24.5% of Jordan’s GDP and employed 24% of the workforce. Phosphate and potash are the most important mining industries. Jordan’s mining and extraction industry contributes in terms of investment, exports, and revenue. For example, this industry provides the government with more than JOD 1 billion in direct and indirect taxes each year. Therefore, Jordan’s mining and extraction firms create significant job opportunities for the local workforce and make a considerable contribution to the country’s GDP. Considering the financial position of mining and extraction firms reveals that these types of firms own a large proportion of tangible assets in relation to their total assets (Jaber et al., 2022). Therefore, the present study aims to answer the following two questions: First, does asset tangibility affect the market value of the listed mining and extraction firms at the Amman Stock Exchange (ASE)? Second, does the profitability of the listed mining and extraction firms at the ASE mediate the impact of their asset tangibility on their market value?

This study is of great importance because it focuses on issues that are considered vital by investors and creditors, such as the relationship between asset tangibility and firm market value, which is considered to be among the most important information required for investment decisions. This study is relevant because these two issues (tangibility and firm value) should be carefully considered and deeply analyzed before investors make their investment decisions. The financial difficulties currently faced by most of the listed manufacturing firms in Jordan and the Middle East increase the importance of this study, the findings of which can provide help for different parties inside and outside of business organizations. In general, business organizations cannot continue without continuous profitability, so the findings of this study are also beneficial for firms’ success and survival. Moreover, the findings can benefit the management of business organizations. Firms with an increasing value will attract more investment, and they will encounter fewer difficulties when they need funding, whether through additional equity or through borrowing.

This study aimed to achieve several objectives: The key objective of this study was to determine whether asset tangibility affects firm market value. Another objective was to determine whether firms’ profitability plays a mediating role in the assumed effect relationship of asset tangibility on firm market value. Profitability, or financial performance, is of great importance for various parties; therefore, acquiring and holding more tangible assets is assumed to lead to increased productivity and profitability, and it affects the market value of the listed mining and extraction firms at the ASE. One additional objective of this study was to add to the available literature regarding the impact of tangible assets on firms’ value.

The remainder of this study is structured as follows: Section 2 explores the related literature, and Section 3 presents the hypotheses developed based on the consideration of the literature review. Section 4 shows the methodology followed by the authors while preparing this study, from data collection to the findings. Section 5 reveals the analysis and discussions, including hypothesis testing, while Section 6 presents the conclusions and findings of this study.

2. Literature Review and Prior Research

A firm’s survival and development depend significantly on a number of different factors, including investment in assets (Nangih & Turakpe, 2023). Assets are resources controlled by the holding firm, resulting from past transactions, where expected future economic benefits are expected to flow to the firm as a result of using these assets in operations. The most important portion of the assets in mining and extraction firms normally consists of fixed tangible assets. Therefore, an asset is acquired and held to be used in a firm in such a way that it contributes to the flow of benefits to the firm owning or controlling that asset. The Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) classify assets into current and noncurrent assets, where current assets are expected to be liquidated or converted to cash within one year or less, while noncurrent assets require more than one year to be liquidated or converted to cash at their actual value, and without a substantial loss. In addition, assets are classified into tangible and intangible assets. Tangible assets have a physical substance, while intangible assets do not. Examples of tangible assets include land, buildings, equipment, vehicles, furniture, etc., all of which (except land) are subject to depreciation. Intangible assets have no physical substance, e.g., goodwill, trademarks, patents, copyrights, and trade names.

According to Igbru and Onuora (2020), most tangible assets have higher market value and can be easily sold in case of liquidation. Moreover, the ownership of tangible assets is a key factor in borrowing, where lenders are more willing to provide loans with less cost for the borrowing firms when those firms have more tangible assets, which can be used as collateral against the loans (Rahman and Yilun, 2021).

Investment in tangible assets is a normal issue in manufacturing firms, where these tangible fixed assets, whatever their form, must be acquired and held for use in the production of goods. Fixed tangible assets constitute the majority of manufacturing firms’ assets, including mining and extraction firms. With the exception of land, most fixed tangible assets are subject to depreciation and have an economically useful life, throughout which their book value declines. There is a motivation behind any investment, whether in tangible, intangible, or financial assets. Investors postpone their consumption of money in the hope of achieving a reasonable rate of return on investment (ROI). It is also known that the return on investments is categorized into two types: yield, which takes the form of dividends paid by the firm to its shareholders, and capital gains, resulting from the increase or decrease in shares’ market value.

Most investments, including investments in fixed tangible assets, involve a level of risk. Investment risk is normally the difference between the expected return and the actual return received (Saleh, 2018). When the difference between the received and expected return on an investment is high, the risk of that investment is considered to be high, while when this difference is low, so is the risk. The risk of an investment can be attributed to various factors, including interest rate risk, inflation risk, market rate risk, firm risk, financial risk, currency exchange risk, liquidity risk, and state risk. In general, risks are commonly divided into systematic and nonsystematic risk. The systematic risk is related to a firm, and it can be reduced through diversification.

According to Picker (1992), asset tangibility is of great importance since it is used for conveying information to lenders regarding the repayment of borrowed funds. This means that, as more assets are held and owned by firms, borrowing becomes easier and cheaper, since tangible assets signal to lenders that the firm is more likely to pay its debts. The importance of holding tangible assets also arises from the revenue–expense relationship, where no revenue can be acquired without incurring expenses and costs. More investments must be used in the acquisition and lease of assets, and more funds must be paid for their acquisition or development, but these assets are necessary for production and operations, and the revenue of the firm depends to a large degree on tangible assets, because these assets are used to simplify the production process, leading to better-quality products and, thereafter, to increased productivity and profitability.

During the last century, profit maximization was the primary goal. Profit maximization means that the firm is required to make as much profit as possible. Today, profit maximization is no longer the primary focus of business organizations, having been surpassed by the pursuit of a good firm market value (Sampurna & Romawati, 2019). As a result, recently, especially in the past 20 years, firm market value has received significant attention from academics, researchers, financial analysts, practitioners, etc., because of the importance of this indicator to investors and other users of financial information. A firm’s market value means many things to investors, who prefer to invest their funds in more successful (i.e., more profitable) firms. More profitable firms are more successful in the literature and the business environment. It is assumed that more tangible assets lead to more profits because the availability of different needed tangible assets leads to more products with higher quality and, thereafter, to higher profitability and increasing market value of the firm. However, the tangible assets held by a firm are critical. When a firm owns large amounts of different tangible assets, especially those that are rarely needed, this may, in fact, reduce profitability, thereby decreasing the firm’s value.

A firm’s value is the present value of its expected future cash flows, which are influenced by the firm’s risk and reflect the value of its assets (Gamaliel, 2024). There are several values for a firm, such as nominal value, book value, intrinsic value, and market value; the latter refers to the market valuation of a firm, and it is the most important value from the perspective of investors, shareholders, and creditors. The nominal value of a firm is the value recorded in the firm’s article when it is founded, or according to its deed of change (Gamaliel, 2024). The nominal value is also written on the charter of its shares before they are traded on the stock exchange. A firm’s book value is based on its accounting books, and it can be determined by deducting total liabilities from total assets and dividing the result by the number of shares outstanding. The intrinsic value of firms is based on financial analysis, and it is used in the assessment of share price, as well as by investors in making investment decisions.

A firm’s market value is sometimes called its market price, which is the result of market valuation or of bargaining between sellers and buyers of the firm’s shares in the stock exchange. As a result, the firm’s value in the stock exchange is determined when its shares are listed. The importance of a firm’s market value stems from the attention given to this value by shareholders and investors because investors prefer investing more in firms that they expect to provide them with more returns, and a portion of these returns is gained through the increasing price of shares, in addition to dividends.

Few studies have investigated the possible impact of asset tangibility on firm market value, especially where profitability is taken into consideration as a mediator in the assumed effect relationship. Several such studies are considered in this paper, and the following is a summary of each one:

Vuković et al. (2024) carried out a study aiming to build a model of firms’ optimal value by assessing the performance of the firms based on the analysis of their financial statements. Their study attempted to identify the most important determinants of firms’ value. Several financial indicators were thoroughly considered, including financial leverage, profitability, size, growth, liquidity, and asset tangibility. Secondary data of 158 Eastern and Western European firms, covering the period 2015–2020, were collected and used in the data analysis and hypothesis testing, using descriptive statistics and the regression method. The results of the regression method showed that the debt-to-assets ratio, return on equity, and asset tangibility have significant adverse effects on firms’ value, while the return on assets and firm size have significant favorable impacts.

Dwaikat et al. (2023) investigated the mediating impact of financial performance on the impact relationship of asset utilization on the market value of Palestinian listed firms. To achieve their objective, the authors collected the published related secondary data, covering the period 2010–2018, of a sample of 21 listed Palestinian firms, and they used these data in their analysis and hypothesis testing. The structural equation model was used for testing the different hypotheses. The results showed that the utilization of assets enhances the financial performance and, in turn, the market value of firms, and that financial performance mediated the impact of asset utilization on firm market value.

Omereas and Frank (2023) investigated the determinants of tangible assets, aiming to determine the firm-specific factors affecting the tangible assets of the 10 multinational oil and gas firms operating in Nigeria. The relevant secondary data of the 10 firms, covering the period 2013–2022, were collected and used in the analysis and hypothesis testing. Employing the generalized linear model, the results revealed that the tangible assets of multinational oil and gas firms in Nigeria are positively and significantly affected by return on assets (ROA) and firm age, whereas they are negatively affected by financial leverage.

Nangih and Turakpe (2023) investigated the impact of the tangibility of Nigerian listed consumer and industrial firms’ assets on their market performance. Secondary data of 13 listed consumer and industrial firms, covering the period 2013–2022, were collected and used in data analysis and hypothesis testing. Employing descriptive statistics, correlation, and regression methods, the results showed that asset tangibility is significant in predicting the market performance of firms, and that tangible noncurrent assets have an insignificant negative impact on market performance indicators, while intangible noncurrent assets have a significant positive impact on market performance. The authors advised firms to invest minimally in intangible noncurrent assets and to invest more in intangible resources.

Mukherjee et al. (2023) investigated the relationship between stock liquidity and firm value, taking capital structure as a mediating variable in this relationship. The sample data consisted of 97 top National Stock Exchange-listed non-financial firms, covering the period from 2010 to 2019, and employing the Baron and Kenny approach. The results showed that higher stock liquidity leads to a greater firm value, although firms with liquid stocks have lower leverage. In addition, the results revealed that capital structure fully mediates the relationship between stock liquidity and firm value.

Ramadhan et al. (2022) carried out a study aiming to determine whether tangible and intangible assets affect firms’ value, using sustainable growth as a moderating variable. Secondary data of a sample of 48 firms for 2019 and 2020 were collected using IDX and Yahoo Finance for use in the analysis and hypothesis testing. Employing panel data regression and moderated regression analysis, the results showed a positive significant impact of tangible assets on the value of the listed firms at the Egyptian Stock Exchange. Secondary data covering the period 2012–2014 for the most continuously active EGX 30-listed firms at the Egyptian Stock Exchange were also collected and used in the analysis, and the results were used in the analysis and hypothesis testing. Employing the regression method in the hypothesis testing, the results showed that the level of intangible assets has a significant positive impact on the firm’s value, using Tobin’s Q, while the firm’s liquidity is not significantly influenced by the level of intangibility. The results also demonstrated that the level of intangibility has a significant impact on the firm’s activity at the aggregate level, whereas the intensity of investment in intangibles has no impact on the firm’s activity level.

Mubyarto (2020) aimed to determine the impact of profitability on firms’ value, as well as whether capital structure plays a mediating role in that impact. To this end, the author used a panel of secondary data for 44 firms listed on the LQ45, covering the period 2015–2018, in the analysis and hypothesis testing. Employing path analysis methods, including the Sobel test and bootstrapping, the results showed a direct, positive, significant effect of profitability on firm value, along with an indirect negative effect of profitability on firm value when capital structure is used as a mediator. The results also revealed a negative direct impact of capital structure on firm value, as well as a direct impact of profitability on capital structure.

The aim of Mohammed and Al Ani’s (2020) study was to examine the impact of calculated tangible assets, financial performance, and financial policy on the value of the industrial firms listed on the Muscat Securities Market. To achieve their objectives, secondary data covering the period 2010–2014, attributed to a sample consisting of 46 firms listed on the Muscat Securities Market, were collected and used in the analysis and hypothesis testing. Specifically, the study considered three variables: intangible assets, financial policy, and financial performance. Tobin’s Q was used as a measure of firms’ value as the dependent variable. Upon employing the regression method in data analysis and hypothesis testing, the results showed that asset intangibility, financial performance, and financial policy all had a significant influence on firms’ value.

Ismail (2019) investigated the relationship between intangible assets and firm market value and financial performance among firms listed on the Egyptian Stock Exchange. Secondary data covering the period 2000–2014, from a sample consisting of 30 firms representing six different industries, were collected and used in the analysis and hypothesis testing. Employing the linear regression method for hypothesis testing, the results showed that the level of intangible assets has a positive impact on firms’ value, which was measured using Tobin’s Q. The results also showed no significant impact of asset tangibility on firms’ liquidity. In addition, the results showed that the level of intangible assets significantly affects the firm’s activity at the aggregate level.

Sampurna and Romawati (2019) attempted to determine the most important factors determining firm market value; their goal was to examine some probable determinants of the value of manufacturing firms listed on the Indonesia Stock Exchange (IDX) over a five-year period. The study considered five possible determinants: institutional ownership, firm size, profitability, leverage, and investment opportunity. To achieve this objective, the secondary data of 84 listed manufacturing firms were collected and used in the analysis and hypothesis testing. Upon employing the multiple linear regression method, the results showed that the firm size, return on assets, and market-to-book value of equity have a positive significant impact on firm value, while the debt-to-total-assets ratio and institutional ownership have a significant negative impact on firm value.

Saleh (2018) carried out a study to determine whether the tangible and intangible assets of the listed manufacturing firms at the Indonesia Stock Exchange affect the market value of those firms. To achieve the objectives of the study, secondary data covering the period 2012–2016 for a sample consisting of 43 of the 51 listed manufacturing firms were gathered and used in the analysis and hypothesis testing. Three regression models were used: the common-effect, fixed-effect, and random-effect models. Firms’ value was measured using return on assets, price-to-book value, and stock return. Employing the regression method, the results revealed that the fixed-effect model was more precise in predicting the impact of investment in tangible and intangible assets on firm market value. The results also showed that only tangible assets, in addition to control variables such as current ratio, earnings per share, and net profit margin, significantly affected the firm’s market value.

The purpose of Setiadharma and Machali’s (2017) study was to analyze the direct and indirect impacts of asset structure and firm size on firms’ value. To achieve this objective, secondary data covering the period 2010–2014 were collected from a sample consisting of 34 property and real estate firms listed at the Indonesia Stock Exchange. Upon employing the regression method and path analysis in the data analysis and hypothesis testing, the results showed a direct significant effect of asset structure on the firms’ value, while there was no indirect significant effect of asset structure on the firms’ value when capital structure was used as an intervening variable. In addition, the results revealed no direct effect of firm size on the firms’ value, nor any indirect effect of firm size on the firms’ value with capital structure as an intervening variable. Therefore, the use of capital structure as an intervening variable cannot mediate the relationship effect between asset structure and firm size on the firm’s value.

Gharaibeh and Sarea (2015) aimed to determine the impact of financial leverage and other firm-specific variables on firms’ value. Secondary data of 48 firms listed at the Kuwait Stock Exchange, covering the period 2006–2013, were collected and analyzed to achieve the objectives of the study. Descriptive statistics, correlations, and multiple linear regression were employed in the data analysis and hypothesis testing. When ROA was used as an indicator for firms’ value, the results showed that capital structure (financial leverage) was the most influential variable, while firm-specific variables such as business risk, previous firm values, dividend payout ratio, firm size, growth opportunities, and firm liquidity all had a significant impact on the firms’ value. When ROE was used as another indicator for firms’ value, the results revealed that capital structure, firm size, and growth opportunities all significantly affected the firms’ value.

In brief, firm market value is an important indicator that receives considerable attention from investors, and it varies based on the firm’s reported information. Managers of firms are required to be rational when investing in tangible fixed assets; these assets can be owned, leased, or constructed, all of which are highly costly, despite their necessity for use in production. Mining and extraction firms have more tangible assets in relation to their total assets. Since these tangible assets must be available for use in production, a return is expected to be achieved as a result of these assets. The questionable issue is that these tangible assets, when acquired, are expected to improve productivity in the form of better-quality products and more units produced; therefore, tangible fixed assets are expected to increase the firm’s market value because they are acquired to produce more units of the final products and with better quality. An opposing theory states that more tangible assets lead to more expenses, which may therefore lead to a decline in the firm’s market value. The present study attempts to determine which of these theories is more correct—do tangible assets increase or decrease the firm’s market value.

3. Hypotheses Development

Several studies have revealed that the ownership of more tangible assets leads to higher productivity and profitability, such as the works of Iltas and Demirgunes (2020), Irungu et al. (2018), Mubyarto (2020), Haugen and Baker (1996), Dwaikat et al. (2023), etc.; however, because tangible assets affect profitability, they will likely have a direct or indirect impact on the firm’s market value. A firm with large amounts of tangible assets has invested a lot of capital, leading to higher profitability, which signals to investors in stock exchanges that the firm has a good financial position and is highly profitable, increasing the demand for its shares. In addition, a firm with large amounts of valuable tangible assets encourages commercial banks and other lending institutions to grant loans and funds at a lower cost because lenders perceive that they will receive their repayments when due, as well as receive interest and returns while those loans are outstanding. Based on this information, our first hypothesis was developed, as listed below in its null form.

H1. 

There is no significant impact of assets tangibility at (α ≤ 0.05), on the market value of the listed mining and extracting firms at Amman Stock Exchange.

Manufacturing firms, including mining and extraction firms, acquire more tangible assets to increase their production capacity, to satisfy the increasing demand for their products, or to improve the quality of their products, in order to achieve a better competitive position. Whether firms acquire tangible assets to increase their capacity or to improve their competitive situation, both will lead to increased profitability. As mentioned above, several prior studies revealed that tangible assets affect productivity, so there is no need to list those studies again here. As a result, our second hypothesis was developed, as presented below in its null form.

H2. 

There is no significant impact of assets tangibility at (α ≤ 0.5) on the profitability of the listed mining and extracting firms at Amman Stock Exchange.

Profitability is among the most important factors affecting firms’ value. Previous studies found that the share value increases when the firm reports high profits, whereas the share price declines as a result of reported losses or low profits. For instance, Pasukodewo and Susanti (2020) demonstrated that the partial return on assets, return on equity, and net profit margin had a significant impact on the price–earnings ratio and price-to-book value.

H3. 

There is no significant impact at (α ≤ 0.05) of firm profitability on the market value of the listed mining and extraction firms at Amman Stock Exchange.

Manufacturing firms, including mining and extraction firms, normally hold large amounts of tangible assets in order to produce the required quantity of products and satisfy the orders of their customers. Holding more tangible assets often leads to higher production capacity and, therefore, higher sales volume, especially considering that most industrial firms today are capital-intensive firms, which depend more on machine usage than on labor. Since it is assumed that the tangibility of assets directly affects profitability and that profitability affects firm market value, where the share price changes based on the reported income, it can be assumed that profitability plays a mediating role in the assumed effect relationship of asset tangibility on firm market value. As mentioned above, several prior studies have demonstrated an impact of asset tangibility on profitability and that profitability affects the share market price and the firm’s market value, such as the works of Bakshi (2018), Utama and Suryani (2023), Avdalović and Milenković (2017), Sukesti et al. (2021), and others. Therefore, our fourth and final hypothesis was developed, as listed in null form below.

H4. 

The profitability of the listed mining and extraction firms at Amman Stock Exchange doesn’t mediate the impact of tangible assets on the market value of these firms.

4. Methodology

The population of this study included 11 mining and extraction firms listed on the ASE by the end of the year 2022, but data were only available for 10 of those firms for the whole study period (2013–2022). Therefore, the data attributed to these 10 firms throughout the 10-year study period, for the three variables, led to a total of 300 observations. Initially, we attempted to collect data for a period of 20 years, but unfortunately, the number of firms with the required data declined as the study period was extended, and ultimately, the best option was to collect data covering the period 2013–2022, where data were available for the largest number of firms. Jordan’s mining and extraction industry invests huge amounts of capital and makes a substantial contribution to the gross national product (GNP). Moreover, the mining and extraction industry employs a large proportion of Jordan’s workforce. The single dependent variable used in this study was firm market value, which was measured using Tobin’s Q as a proxy. Tobin’s Q, or the Q ratio, is defined as “a firm’s market value divided by the replacement cost of the firm’s assets” (Fu et al., 2016). A single independent variable was also used in this study: tangible fixed assets. A firm’s tangible assets can be defined as the specific proprietary resources used for driving the increase in the firm’s value to create more wealth for its stakeholders (Hill and Jones, 1992). Asset tangibility can be measured by the tangibility ratio, which is computed by dividing the total fixed tangible assets by total assets. Firm profitability, measured using return on assets (ROA), was used as a mediating variable in this study. Figure 1 illustrates the variables used in this study and the relationships among them.

The hypotheses of this study were tested under a 0.95 coefficient of confidence, which is equivalent to α = 0.05 (1 − 0.95) as a coefficient of significance. The simple linear regression method was used for testing the different hypotheses. A null hypothesis was accepted in the event that the computed t-value was less than its corresponding tabulated one or when the computed coefficient of significance was higher than the predetermined one (0.05). Conversely, a null hypothesis was rejected in the event that the computed t-value was higher than the corresponding tabulated one or when the computed coefficient of significance was less than the predetermined one (5%).

5. Results and Analysis

5.1. Data Analysis

Descriptive statistics were used in the data analysis, including the mean as the most common measure of central tendency and the standard deviation as the most common measure of data dispersion, in addition to the lowest and highest values of the dependent, independent, and mediating variables.

Table 1. Descriptive statistics.

Des, Measure Variable	Variable Type	No. of Values	Minimum	Maximum	Mean	St. Deviation
Tobin’s Q	Dependent	100	0.1277	7.2189	1.0775	1.07125
Tangibility	Independent	100	0.0006	0.8533	0.3656	0.19893
ROA	Mediating	100	−1.953	2.9399	0.0391	0.46299

shows each of these descriptive statistics for each variable, showing a mean of 0.3656 for asset tangibility, with a standard deviation of 0.19893. This means that the mining and extraction firms hold high levels of fixed assets in relation to their total assets. Regarding firms’ profitability, the table shows a mean of 0.0391 for ROA, as a measure of profitability, with a standard deviation of 0.46299. With regard to Tobin’s Q, the mean equals 1.0755, with a standard deviation of 1.07125. The minimum value of Tobin’s Q equals 0.1277, and the maximum is 7.2189.

5.2. Correlations

The coefficients of correlation among the three variables considered in this study, in addition to the related coefficients of significance, were computed and are shown in

Table 2. Coefficients of Correlation.

Variables	Tobin’s Q		Assets Tangibility		Profitability (ROA)
	Coe. of Correlation	Sig.	Coe. of Correlation	Sig.	Coe. of Correlation	Sig.
Tobin’s Q	1	---	−0.204	0.042	−0.262	0.008
Assets Tangibility			1	---	0.198	0.048
Profitability (ROA)					1	---

Coefficients are sig when it equals 0.05 or less.

, which indicates a strong positive and significant correlation between asset tangibility and firms’ profitability (as measured by ROA), along with a negative correlation between asset tangibility and Tobin’s Q. The coefficient of correlation between asset tangibility and firms’ profitability is negative.

5.3. Hypotheses Testing

The study was based on four hypotheses, where the first was concerned with the direct impact of asset tangibility on the market value of the listed mining and extraction firms on the ASE, while the second considered the possible impact of asset tangibility on the firms’ profitability. The third hypothesis was developed to test whether firms’ profitability has a significant impact on their market value, while the fourth was developed to test whether firms’ profitability mediates the impact of their asset tangibility on their market value.

5.3.1. Testing 1st Hypothesis

Several studies have demonstrated that profitability affects firm market value, while few have found the opposite. As mentioned earlier, our first hypothesis was developed based on the related literature in order to test whether there is a direct significant impact of asset tangibility on the market value of the listed mining and extraction firms at the Amman Stock Exchange.

The simple linear regression method was used for testing the first hypothesis. The test revealed that the coefficient of correlation (R) between asset tangibility (as measured by the ratio of tangible fixed assets to total assets) and firm market value (as measured using Tobin’s Q) equals 0.204, while the coefficient of determination (R²) equals 0.042. This value of the coefficient of correlation means that there is a weak relationship between asset tangibility and the market value of the listed mining and extraction firms at the ASE, where the asset tangibility explains only 4.2% of the change taking place in the firm market value.

Table 3. 1st Hypothesis coefficients.

	Unstandardized Coefficients		Standardized Coefficients
	B	Std. Error	Beta	T	Sig.
Constant	1.48	0.221		6.683	<0.001
Assets Tangibility	−1.099	0.533	−0.204	−2.065	0.042

shows the relevant statistics of the first hypothesis, where the t-value is significant and equals −2.065, with a computed coefficient of significance of 0.042. This means that asset tangibility has a direct, significant, negative impact on the market value of the listed mining and extraction firms at the ASE. The test showed a b-value of −1.099, meaning that there is a negative relationship between asset tangibility and firm market value. The b-value refers to the slope of the firm’s market value on asset tangibility, here meaning that, as the tangibility of assets increases, the market value slightly declines. Because the absolute computed t-value was greater than its corresponding tabular one (1.96), and because the computed coefficient of significance was less than 5%, the null hypothesis was rejected, and the alternative form of the hypothesis was accepted. Based on this result, firms whose value is decreasing should reduce their investment in fixed tangible assets.

The negative relationship between fixed tangible assets and firm market value can be considered rational and reasonable because more fixed assets mean more maintenance and depreciation, and expenses normally decrease the market value of shares. As a result, the simple linear regression model that represents the first hypothesis, when the coefficients are known, is as follows:

FMV = 2.928 − 1.203ATG + 1.0395

(1)

where, ATG refers for assets tangibility. where ATG refers to asset tangibility.

This result refers to the rational investment in tangible fixed assets. This means that holding more current assets does not necessarily lead to a higher market value, and the decision to acquire an asset should be taken carefully based on cost–benefit analysis, where firms should prioritize acquiring those assets that will generate benefits in excess of their cost. Moreover, firms’ managers should consider that the value and benefit of most assets decline when more developed alternative assets are introduced. In this context, it should be noted that investors in shares vary, where some of them prefer investment in firms that pay more regular dividends, ignoring investing in more profitable firms with low/irregular dividends. Moreover, other investors focus on firms’ financial position or other financial issues when they make their investment decisions—not on profitability.

5.3.2. Testing the 2nd Hypothesis

Our second hypothesis was developed to test whether asset tangibility affects the profitability of the listed mining and extraction firms at the ASE.

The simple linear regression method was also employed for testing the second hypothesis, showing a correlation coefficient (R) of 0.198, while the coefficient of determination (R²) was 0.039, meaning that asset tangibility explains 3.9% of the change taking place in the firms’ profitability.

Table 4. Related coefficients to the 2nd hypotheses.

	Unstandardized Coefficients		Standardized Coefficients
	B	Std. Error	Beta	T	Sig
Constant	−0.129	0.096		−1.349	0.180
ATG	0.461	0.230	0.198	1.999	0.048

shows the coefficients of the test for the second hypothesis. The computed t-value equals 2.007, while the computed coefficient of significance (sig.) equals 0.048. Therefore, because the computed t-value is higher than the corresponding tabulated one (1.96), and because the computed coefficient of significance equals 0.048, which is less than the corresponding predetermined one (0.05), the null hypothesis is rejected, and the alternative form is accepted. This result means that there is a positive significant impact of asset tangibility on the profitability of the listed mining and extraction firms at the ASE. This result is logical because holding more fixed tangible assets leads to more production and, therefore, more revenues and profits. This also suggests that firms are required to hold more tangible fixed assets in order to achieve greater profits.

This result is logical because, in most common situations, a tangible asset is acquired only when there is a strong need for that asset in operations, and firms select assets based on their operating efficiency.

When the coefficients of the second hypothesis became known, the regression model representing the relations underline this hypothesis, is as follows.

ROA = −0.129 + 0.461ATG + 0.456

(2)

5.3.3. Testing the 3rd Hypothesis

Our third hypothesis was developed to test whether firms’ profitability affects their market value.

As with the preceding two hypotheses, the simple linear regression method was used for testing the impact of firms’ profitability on their market value. ROA was used as an indicator for firms’ profitability, while Tobin’s Q was used as the indicator for their market value. The test revealed a correlation coefficient (R) of 0.262, whereas the coefficient of determination (R²) was 0.069. This means that there is a level of correlation between firms’ profitability and their market value, and firms’ profitability explains 6.9% of the change in their market value.

Table 5. Related coefficients to the 3rd hypothesis.

	Unstandardized Coefficients		Standardized Coefficients
	B	Std. Error	Beta	T	Sig
Constant	1.01	0.104		10.561	0.000
ROA	−0.607	0.226	−0.262	−2.690	0.008

shows the statistics related to the impact of firms’ profitability on their market value, where the computed t-value equals −2.690, and the coefficient of determination equals 0.008. Because the absolute computed t-value is greater than its corresponding tabulated one (1.96), and because the computed coefficient of significance (sig) is less than 0.05, the null hypothesis is rejected, and its alternative form is accepted. Therefore, the computed t-value and the coefficient of significance indicate a significant impact of the listed manufacturing firms’ profitability on their market value at the ASE. This result seems to conflict with some prior research, but this conflict can be explained by the focus on investors and shareholders in Jordan, who focus more on dividends when they make their investment decisions. Moreover, the financial position of the firm receives more focus and attention from investors than profitability, especially because expected future cash flows depend on the current financial position, including assets, liabilities, and equity. In addition, we cannot consider that the Amman Stock Exchange is deep enough to reflect this information promptly in share prices. This rule is valid in deep and large stock exchanges, such as the US, China, and Japan stock exchanges.

As a result, when the coefficients had computed and became known, the regression model representing the impact of firm profitability on firm market value, appears as follows.

FMV = 1.01 − 0.607 ROA + 1.039

(3)

where FMV refers to the firm market value.

5.3.4. Testing the 4th Hypothesis

The fourth hypothesis was developed to test whether the listed mining and extraction firms’ profitability mediates the impact of their asset tangibility on their market value at the ASE.

The Baron and Kenny (1986) model was used for testing the fourth hypothesis, which states that firms’ profitability mediates the impact of their asset tangibility on their market value. Based on this model, three conditions should be met to determine that a firm’s profitability mediates the impact of its asset tangibility on its market value: The first condition is that the asset tangibility, as an independent variable, has a significant mediating effect on the firm’s profitability. The second condition is that there is a direct significant impact of the independent variable (asset tangibility) on the dependent variable (the firm’s market value), while the last condition is that there is a significant impact of the independent variable on the dependent variable, with the existence of the mediator.

Employing the regression test based on the Baron and Kenny model and checking the first condition (regarding the impact of asset tangibility on firms’ profitability), the test revealed a correlation coefficient of 0.198, an f-value of 3.9953, a t-value of 1.999, a b-value (slope) of 0.461, and a coefficient of significance of 0.048. Because the coefficient of significance is less than 0.05, there is a significant positive impact of asset tangibility on firms’ profitability, which means that firms’ profitability is increased by the increase in their asset tangibility. It can thus be concluded that the first condition, regarding the impact of asset tangibility on firms’ profitability, is met.

Table 6. The 4th hypothesis coefficients.

	Coefficients of Regression (b-Value)	t-Value	Sig.
Assets Tangibility on Firm Market Value	−1.099	−2.065	0.042
Direct Impact of Assets Tan, on profitability	0.461	1.999	0.111
Impact of Assets Tangibility on Firm Value, with the existence of firm profitability	−0.853	−1.606	0.021

shows the coefficients of the significant negative impact of asset tangibility on firms’ profitability.

The simple linear regression method was also employed to test the second condition regarding the direct impact of asset tangibility on firm market value, where the mediator (profitability) was not present, with the following results: b-value = −1.099, t-value = −2.065, and p-value (Sig.) = 0.042. With regard to the impact of asset tangibility on firms’ value, when profitability was present as a mediating variable, the results were b-value = −0.853, t-value = −1.606, and p-value (sig.) = 0.111. The coefficients of the impact of asset tangibility on profitability are included in the table, and their values indicate that the effect relationship is significant. F-values were used as the basis for the acceptance/rejection of the fourth null hypothesis because the multiple linear regression method was used in testing the combined impact of the mediator (profitability) and the independent variable (tangibility) on the dependent variable (firm market value). The multiple regression test revealed an f-value of 4.966, meaning that the combined effect of tangibility and profitability is significant. All of the abovementioned coefficients indicate that firms’ profitability mediates the effect relationship of their asset tangibility on their market value. Based on these coefficients, the null form of the fourth hypothesis is rejected, and its alternative form is accepted. This means that firms’ profitability mediates the impact of their asset tangibility on their market value, and that this mediation is complete mediation, since the slope coefficient (b-value) became insignificant when it was taken together with profitability as a mediator in a multiple regression test. Figure 2 illustrates this result.

With regard to the third condition of the mediation relationship of firms’ profitability between their asset tangibility and their market value, as well as the indirect impact of asset tangibility on firms’ value with the existence of firm size, the multiple regression reveals that R = 0.305, F = 4.996, b-value (asset tangibility) = −1.606, b-value (firms’ profitability) = −0.534, t-value (asset tangibility) = −1.606, t-value (firms’ profitability) = −2.34, p-value (asset tangibility) = 0.111, p-value (firms’ profitability) = 0.021, and the f-value of the model equals 4.966. It should be noted that the impact is clear, where Table 6 summarizes the coefficients regarding the indirect impact of asset tangibility on firm market value.

6. Findings & Conclusions

The key purpose of this study was to determine whether asset tangibility affects the market value of the listed mining and extraction firms at the ASE, as well as to determine whether the firms’ profitability mediates this impact. To achieve these objectives, the related data were collected and analyzed. Testing our hypotheses using the regression method, the results revealed a direct impact of asset tangibility on firm market value. This conclusion is logical because, in manufacturing (including mining and extraction industries), tangible assets are the most important, as production, sales, or profit can be achieved without them, and the firm’s market value can change based on various drivers, where profitability is important in creating or reducing the demand for shares, the market value of which increases when the demand is higher than the supply, whereas it declines when the supply is greater than the demand. This conclusion is consistent with the findings of Saleh (2018), Mukherjee et al. (2023), and others. Our results also reveal that asset tangibility has a significant impact on firms’ profitability, which, in turn, has a significant impact on their market value. This result is consistent with the findings of Irungu et al. (2018), Mubyarto (2020), Haugen and Baker (1996), and Dwaikat et al. (2023).

With regard to firms’ profitability, our findings demonstrate that it mediates the impact of their asset tangibility on their market value, and that this mediation is complete. The results reveal that firms’ profitability, as a mediator, hinders or lags the impact of their asset tangibility on the firm’s size. Future research should be extended to other industries beyond mining and extraction firms.