Capital structure effect on firms' performance : evidence from Saudi listed companies

Abstract

This study investigates the impact of capital structure on the performance of non-financial firms operating in Saudi Arabia for the period between 2008 and 2012. Sample data includes 67 companies from 13 different sectors. The study analyzes the relationship between capital structure proxies that include short-term debt (STD), long-term debt (LTD) and total debt (TD) with operating performance measured by earnings per share (EPS), net profit margin (NPM), return on assets (ROA) and return on equity (ROE). A firm’s size that was found by the literature to have an influence on the performance of a firm is used as a control variable. The study finds that only LTD and TD have significant impacts on ROE while ROA has a statistically significant relationship with each level of debt. Both EPS and NPM are found to have positive relations with STD whereas they have inverse relations with LTD and TD.