Capital Structure and Firm Performance: Evidence From Saudi Non-Financial Firms Under IFRS 16

Alhussain, Rehan Fahad; Alsultan, Abdulaziz  Sulaiman

doi:10.21608/aljalexu.2021.206898

Capital Structure and Firm Performance: Evidence From Saudi Non-Financial Firms Under IFRS 16

Document Type : Original Article

Authors

¹ Master’s student, Accounting Department, College of Economicsand Administrative Sciences Imam Muhammad Ibn Saud Islamic University, Riyadh (IMSIU), Saudi Arabia

² Assistant Professor of Accounting, Accounting Department, College of Economics and Administrative Sciences Imam Muhammad Ibn Saud Islamic University, Riyadh (IMSIU), Saudi Arabia

10.21608/aljalexu.2021.206898

Abstract

This paper examines the relationship between capital structure and firm performance and considers the moderating effect on this relationship of the issuance of International Financial Reporting Standards (IFRS) 16. The study sample consists of 101 Saudi non-financial firms listed on the Tadawul between 2017 and 2020. The study uses two proxies for firm performance: an accounting-based measure using return on assets and a market-based measure using Tobin’s q. Capital structure is measured using financial leverage. To avoid bias in the results, the study employs six control variables: growth, firm size, tangibility, risk, investment, and industry. The existing theory posits a positive relationship; however, using ordinary least squares regression, this study finds that high leverage firms in Saudi Arabia are associated with lower performance. IFRS 16 was only found to have a significantly positive impact on market performance.

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