Journal of Applied Finance & Banking

The Impact of Capital Structure on Firm’s Performance Evidence from Saudi Arabia

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• Abstract

  The purpose of this paper is to empirically investigate the impact of capital structure on the performance of non-financial firms operating in Saudi Arabia as one of emerging or transition economies. Panel econometric technique called fixed effect regression is used for the period between 2004 and 2012.Sample data includes 74 companies. The study analyzes the relationship between capital structure proxies that include short-term debt (STD), long-term debt (LTD) and total debt (TD) and the operating performance measured by return on assets (ROA) and return on equity (ROE). The firm’s size that was found in the literature to have an influence on the performance of a firm is used as a control variable. The study finds that STD, LTD and TD have significant impacts on ROA. While only LTD has significant impacts on ROE. Firm size has significant impacts on firm performance when ROA is a dependent variable and no impact on firm performance when ROA is dependent variable.