Capital Structure and Firm Performance: Empirical Evidence from a Transition Country

Nathan, Demyana; El Hadidi, Asmaa

doi:10.21608/aljalexu.2020.106201

Capital Structure and Firm Performance: Empirical Evidence from a Transition Country

Document Type : Original Article

Authors

Demyana Nathan ¹
Asmaa El Hadidi ²

¹ Accounting and Finance Department

² Accounting and Finance Department Arab Academy for Science, Technology and Maritime Transport Egypt

10.21608/aljalexu.2020.106201

Abstract

The purpose of this paper is to investigate the effect of capital structure on the financial performance of non-financial firms in Egypt. A panel econometric technique namely fixed effects model is employed based on the result of the hausman test to estimate the impact of capital structure indicators which are long-term debt LDR and short-term debt SDR on firm performance proxies such as returns on asset (ROA), returns on equity (ROE) and Tobin-Q. The main control variables used in the current study are firm size, firm age, assets tangibility and growth of sales. All tests in this study are applied on data obtained from annual financial reports of the 50 most active companies in the Egyptian stock market during the period 2003 to 2015.
The statistical results show that there is a significant negative effect of long-term debt LDR and short-term debt SDR on the ROA. On the contrary, there is a positive significant effect of short-term debt SDR on the Q ratio, while the effect of long-term debt LDR on the Q ratio is insignificant. However, there is an insignificant effect of long-term debt LDR and short-term debt SDR on the ROE.

Keywords