Capital structure and performance nexus: Insights from fixed-effects and quantile analysis
Vol 8, Issue 7, 2024
VIEWS - 245 (Abstract) 173 (PDF)
Abstract
The research utilizes a comprehensive dataset from MENA-listed companies, capturing data from 2013 to 2022 to scrutinize the influence of capital structure (CapSt) level on corporate performance across 11 distinct countries. This study analyzed 6870 firm-year observations using a quantitative research method through static and dynamic panel data analysis. The primary analysis reveals a positive correlation between the CapSt ratio and company performance using fixed effects (FE) techniques. Hence, the preliminary results were re-examined and affirmed using a two-step system generalized method of moment (GMM) estimator to address potential endogeneity concerns. This finding aligns with most studies conducted in advanced countries, indicating a positive correlation between CapSt and corporate performance. Furthermore, it is also consistent with some research conducted in less-developed markets. This research argues that, in the MENA region, the advantages of debt, such as tax saving, may outweigh the potential financial distress cost. Furthermore, it offers insights into the monitoring role of CapSt in MENA-listed companies. We strengthen our research results by employing various methodologies and using alternative measures of accounting performance and controlling size, notably panel quantile regression analysis.
Keywords
Full Text:
PDFReferences
Abdullah, H., & Tursoy, T. (2021). Capital structure and firm performance: evidence of Germany under IFRS adoption. Review of Managerial Science, 15(2), 379–398. https://doi.org/10.1007/s11846-019-00344-5
Ahmed, R., & Bhuyan, R. (2020). Capital structure and firm performance in Australian service sector firms: A panel data analysis. Journal of Risk and Financial Management, 13(9), 214. https://doi.org/10.3390/jrfm13090214
Ahmed, A. M., Nugraha, D. P., & Hágen, I. (2023). The relationship between capital structure and firm performance: The moderating role of agency cost. Risks, 11(6), 102. https://doi.org/10.3390/risks11060102
Akhtar, M., Haris, M., Naveed, H. M., et al. (2024). Electricity shortfalls and financial leverage of listed firms in Pakistan. Utilities Policy, 87, 101719. https://doi.org/10.1016/j.jup.2024.101719
Akhtar, M., Yusheng, K., Haris, M., et al. (2022). Impact of financial leverage on sustainable growth, market performance, and profitability. Economic Change and Restructuring, 1–38. https://doi.org/10.1007/s10644-021-09321-z
Albaity, M., Shah, S. F., Al-Tamimi, H. A. H., et al. (2023). Country risk and bank returns: evidence from MENA countries. The Journal of Economic Asymmetries, 28, e00329. https://doi.org/10.1016/j.jeca.2023.e00329
Al-Nohood, S., Abdul Hamid, M. A., & Latiff, A. R. A. (2024a). Impact of Board of Directors’ Characteristics on Accrual and Real Earnings Management among Jordanian Listed Firms: Conceptual Paper. International Journal of Academic Research in Accounting, Finance and Management Sciences, 14(1), 455–471. http://doi.org/10.6007/IJARAFMS/v14-i1/20855
Al-Nohood, S., Abdul Hamid, M. A., & Latiff, A. R. A. (2024b). Impact of Audit Committee Effectiveness on Accrual and Real Earnings Management among Jordanian Listed Firms: Conceptual Paper. International Journal of Academic Research in Business and Social Sciences, 14(2), 2103–2118. http://doi.org/10.6007/IJARBSS/v14-i2/20864
Alodat, A. Y., Al Amosh, H., Khatib, S. F., & Mansour, M. (2023). Audit committee chair effectiveness and firm performance: The mediating role of sustainability disclosure. Cogent Business & Management, 10(1), 2181156. https://doi.org/10.1080/23311975.2023.21811563
Al-Qaisi, K., & Shubita, M. F. (2013). The determinants of capital structure: Palestinian case (2003–2007). Interdisciplinary Journal of Contemporary Research in Business, 4(12), 385–398.
Al-Zoubi, M., & Sha’ban, M. (2023). Bank performance, capital and size: a comparative analysis in MENA and EU. Eurasian Economic Review, 13(3), 677–702. https://doi.org/10.1007/s40822-023-00248-6
Alshehadeh, A. R., Elrefae, G. A., Yaseen, S. G., et al. (2024). Accounting data governance and its influence on financial report quality: Insights from commercial banks. Journal of Infrastructure, Policy and Development, 8(4). https://doi.org/10.24294/jipd.v8i4.3222
Attia, E. F., Ezz Eldeen, H. hany, & Daher, S. (2023). Size-Threshold Effect in the Capital Structure—Firm Performance Nexus in the MENA Region: A Dynamic Panel Threshold Regression Model. Risks, 11, 23. https://doi.org/10.3390/risks11020023
Ayaz, M., Mohamed Zabri, S. and Ahmad, K. (2021). An empirical investigation on the impact of capital structure on firm performance: Evidence from Malaysia. Managerial Finance, 47(8), 1107–1127. https://doi.org/10.1108/MF-11-2019-0586
Bajaj, Y., Kashiramka, S., & Singh, S. (2021). Application of capital structure theories: a systematic review. Journal of Advances in Management Research, 18(2), 173–199. https://doi.org/10.1108/JAMR-01-2020-0017
Baker, M., Wurgler, J. (2002). Market timing and capital structure. The Journal of Finance, 57(1), 1–32. https://doi.org/10.1111/j.1540-6261.1990.tb02425.x
Bandyopadhyay, A., & Barua, N. M. (2016). Factors determining capital structure and corporate performance in India: Studying the business cycle effects. The Quarterly Review of Economics and Finance, 61, 160–172. https://doi.org/10.1016/j.qref.2016.01.004
Berger, A. N., & Di Patti, E. B. (2006). Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry. Journal of Banking Finance, 30(4), 1065–1102. https://doi.org/10.1016/j.jbankfin.2005.05.015
Brendea, G., Pop, F., & Mihalca, L. (2022). Capital structure and firm performance: The case of Central and Eastern European economies. Ekonomický časopis/Journal of Economics, 70(5), 430–449. https://doi.org/10.31577/ekoncas.2022.05.03
Chauhan, S., Verma, A., & Kumar, C. V. (2024). Effect of capital structure on the financial and social performance of Indian microfinance institutions. FIIB Business Review, 13(2), 243–256. https://doi.org/10.1177/23197145221099677
Danso, A., Lartey, T. A., Gyimah, D., & Adu-Ameyaw, E. (2021). Leverage and performance: Do size and crisis matter? Managerial Finance, 47(5), 635–655. https://doi.org/10.1108/MF-10-2019-0522
Dao, B. T. T., Ta, T. D. N. (2020). A meta-analysis: capital structure and firm performance. Journal of Economics and Development, 22(1), 111–129. https://doi.org/10.1108/JED-12-2019-0072
Das, N. C., Chowdhury, M. A. F., & Islam, M. N. (2022). The heterogeneous impact of leverage on firm performance: Empirical evidence from Bangladesh. South Asian Journal of Business Studies, 11(2), 235–252. https://doi.org/10.1108/SAJBS-04-2020-0100
Essel, R. E. (2023). The Effect of Capital Structure on Corporate Performance: Panel Empirical Evidence of an Emerging Capital Market. Journal of African Business, 1–40. https://doi.org/10.1080/15228916.2023.2170856
Fekadu Agmas, W. (2020). Impacts of capital structure: profitability of construction companies in Ethiopia. Journal of Financial Management of Property and Construction, 25(3), 371–386. https://doi.org/10.1108/JFMPC-08-2019-0072
Fosu, S. (2013). Capital structure, product market competition and firm performance: Evidence from South Africa. The quarterly review of economics and finance, 53(2), 140–151. https://doi.org/10.1016/j.qref.2013.02.004
Gallegos Mardones, J., & Ruiz Cuneo, G. (2020). Capital structure and performance in Latin American companies. Economic research-Ekonomska istraživanja, 33(1), 2171–2188. https://doi.org/10.1080/1331677X.2019.1697720
Geng, L., Abban, O. J., Hongxing, Y., et al. (2023). Do military expenditures impede economic growth in 48 Islamic countries? A panel data analysis with novel approaches. Environment, Development and Sustainability, 1–35. https://doi.org/10.1007/s10668-023-03413-8
Habibniya, H., Dsouza, S., Rabbani, M. R., et al. (2022). Impact of capital structure on profitability: panel data evidence of the telecom industry in the United States. Risks, 10(8), 157. https://doi.org/10.3390/risks10080157
Hamouda, R. Z. B., Hamzaoui, N., & Jilani, F. (2023). Capital Structure Determinants: New Evidence from the MENA Region Countries. International Journal of Economics and Financial Issues, 13(1), 144. https://doi.org/10.32479/ijefi.13695
Heckenbergerová, J., & Honková (2023). Capital structure analysis—theories and determinants validation based on evidence from the Czech Republic. E a M: Ekonomie a Management, 26(1), 145–164. https://doi.org/10.15240/TUL/001/2023-1-009
HongXing, Y., Naveed, H. M., Memon, B. A., et al. (2024). Connectedness between currency risk hedging and firm value: A deep neural network-based evaluation. Computational Economics, 63(2), 599–638. https://doi.org/10.1007/s10614-022-10353-4
Ibhagui, O. W., & Olokoyo, F. O. (2018). Leverage and firm performance: New evidence on the role of firm size. The North American Journal of Economics and Finance, 45, 57–82. https://doi.org/10.1016/j.najef.2018.02.002
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American economic review, 76(2), 323–329.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Kalash, I. (2023). The financial leverage-financial performance relationship in the emerging market of Turkey: the role of financial distress risk and currency crisis. EuroMed Journal of Business, 18(1), 1–20. https://doi.org/10.1108/EMJB-04-2021-0056
Khalaf, A. M., Ismail, W. N. B. W., Marei, A., et al. (2023). The Framework for System Trust’s Effect on the Organizational Commitment in the Jordanian Public Sector. Taking into Consideration the Role of the Timeliness Factor. Scientific Papers of the University of Pardubice. Series D, Faculty of Economics & Administration, 31(2). https://doi.org/10.46585/sp31021696
Khalaf, A. M., Ismail, W. N. W., Haat, M. H. C., et al. (2024). An Empirical Study on The Impact of System Trust Framework Implementation on Organizational Commitment in the Jordanian Government Sector. Journal of Logistics, Informatics and Service Science, 14(1). https://doi.org/10.33168/JLISS.2024.0104
Koenker, R., & Bassett, G. (1978). Regression quantiles. Econometrica, 46(1), 33–50. https://doi.org/10.2307/1913643
Koenker, R., & Hallock, K. F. (2001). Quantile regression: An introduction. Journal of Economic Perspectives, 15, 143–156. https://doi.org/10.1257/jep.15.4.143
Kraus, A., & Litzenberger, R. H. (1973). A state-preference model of optimal financial leverage. The journal of finance, 28(4), 911–922. https://doi.org/10.1111/j.1540-6261.1973.tb01415.x
Le, T. D., & Nguyen, D. T. (2020). Capital structure and bank profitability in Vietnam: A quantile regression approach. Journal of Risk and Financial Management, 13(8), 168. https://doi.org/10.3390/jrfm13080168
Le, T. P. V., & Phan, T. B. N. (2017). Capital structure and firm performance: Empirical evidence from a small transition country. Research in international business and finance, 42, 710–726. https://doi.org/10.1016/j.ribaf.2017.07.012
Li, K., Niskanen, J., & Niskanen, M. (2019). Capital structure and firm performance in European SMEs: Does credit risk make a difference? Managerial Finance, 45(5), 582–601. https://doi.org/10.1108/MF-01-2017-0018
Mansour, M., Hashim, H. A., & Salleh, Z. (2020). Datasets for corporate governance index of Jordanian non-financial sector firms. Data in Brief, 30, 105603. https://doi.org/10.1016/j.dib.2020.105603
Mansour, M., Al Amosh, H., Alodat, A. Y., et al. (2022a). The relationship between corporate governance quality and firm performance: The moderating role of capital structure. Sustainability, 14(17), 10525. https://doi.org/10.3390/su141710525
Mansour, M., Hashim, H., Salleh, Z., et al. (2022b). Governance practices and corporate performance: Assessing the competence of principal-based guidelines. Cogent Business & Management, 9(1), 2105570. https://doi.org/10.1080/23311975.2022.2105570
Mansour, M., Aishah Hashim, H., et al. (2023a). A review of the influence of capital structure on the relationship between corporate governance and firm performance. International Journal of Procurement Management, 17(1), 79–105. https://doi:10.1504/IJPM.2021.10047744
Mansour, M., Al Zobi, M., Al-Naimi, A., & Daoud, L., (2023b). The connection between Capital structure and performance: Does firm size matter? Investment Management and Financial Innovations, 20(1), 195–206. https://doi:10.21511/imfi.20(1).2023.17
Mansour, M., Al Zobi, M., Saleh, M. W. A., et al. (2023c). The board gender composition and cost of debt: Empirical evidence from Jordan. Business Strategy & Development, 1–17. https://doi.org/10. 1002/bsd2.300
Mansour, M., Al Zobi, Saram, M., Daoud, L., Marei, A., (2023d). Does executive compensation matter to bank performance? Experimental evidence from Jordan. Banks and Bank Systems, 18(3), 164–176. https://doi:10.21511/bbs.18(3).2023.14
Mansour, M., Al Zobi, M., Abu alim, S., et al. (2024a). Eco-innovation and financial performance nexus: Does company size matter? Journal of Open Innovation: Technology, Market, and Complexity, 10(1), 100244, https://doi.org/10.1016/j.joitmc.2024.100244
Mansour, M., Al Zobi, M., E’leimat, D., et al. (2024b). Board gender diversity and bank performance in Jordan. Banks and Bank Systems, 19(1), 183–194. http://doi.org/10.21511/bbs.19(1).2024.16
Marei, A. (2024). Improving Financial Performance through Participative Management: The Impact of Transactional Leadership in Jordanian Telecommunications Companies. Kurdish Studies, 12(2), 1417–1439. https://doi.org/10.58262/ks.v12i2.106
Marei, A. (2023). Financial performance persistence in Islamic and conventional fund family: Developing market evidence. Decision Science Letters, 12(4), 659–670. https://doi.org/10.5267/j.dsl.2023.8.003
Margaritis, D., & Psillaki, M. (2010). Capital structure, equity ownership and firm performance. Journal of Banking & Finance, 34(3), 621–632. https://doi.org/10.1016/j.jbankfin.2009.08.023
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261–297.
Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: a correction. The American Economic Review, 53(3), 433–443.
Myers, S. C., Majluf, N. (1984). Corporate Nance and Investment Decisions When Rms Have Information That Investors Do Not Have. Journal of Financial Economics, 13, 187–222. http://doi.org/10.1016/0304-405X(84)90023-0.
Neves, M. E., Serrasqueiro, Z., Dias, A., & Hermano, C. (2020). Capital structure decisions in a period of economic intervention: Empirical evidence of Portuguese companies with panel data. International Journal of Accounting & Information Management, 28(3), 465–495. https://doi.org/10.1108/IJAIM-08-2019-0094
Nikhil, M. N., Shenoy, S. S., Chakraborty, S., & Lithin, B. M. (2024). Is the nexus between capital structure and firm performance asymmetric? An emerging market perspective, Cogent Economics & Finance, 12(1), 2296195. https://doi.org/10.1080/23322039.2023.2296195
Oanh, T. T. K., Van Nguyen, D., Le, H. V., & Duong, K. D. (2023). How capital structure and bank liquidity affect bank performance: Evidence from the Bayesian approach. Cogent Economics & Finance, 11(2), 2260243. https://doi.org/10.1080/23322039.2023.2260243
Pathak, M., & Chandani, A. (2023). The nexus between capital structure and firm-specific factors: evidence from Indian companies. Journal of Economic and Administrative Sciences, 39(2), 470–487. https://doi.org/10.1108/JEAS-02-2021-0028
Ramli, N. A., Latan, H., & Solovida, G. T. (2019). Determinants of capital structure and firm financial performance—A PLS-SEM approach: Evidence from Malaysia and Indonesia. The Quarterly Review of Economics and Finance, 71, 148–160. https://doi.org/10.1016/j.qref.2018.07.001
Ross, S. A. (1977). The determination of financial structure: the incentive-signalling approach. The Bell Journal of Economics, 23–40. https://doi.org/10.2307/3003485
Saleh, M. W., Eleyan, D., & Maigoshi, Z. S. (2022). Moderating effect of CEO power on institutional ownership and performance. EuroMed Journal of Business. https://doi.org/10.1108/EMJB-12-2021-0193
Saleh, M. W., & Islam, M. A. (2020). Does board characteristics enhance firm performance? Evidence from Palestinian listed companies. International Journal of Multidisciplinary Sciences and Advanced Technology, 1(4), 84–95.
Saleh, M. W., Latif, R. A., Bakar, F. A., & Maigoshi, Z. S. (2020). The impact of multiple directorships, board characteristics, and ownership on the performance of Palestinian listed companies. International Journal of Accounting, Auditing and Performance Evaluation, 16(1), 63–80. https://doi.org/10.1504/IJAAPE.2020.106774
Saleh, M. W., & Maigoshi, Z. S. (2024). The nexus of ESG and environmental sustainability: Does gender diversity make a difference in Asian companies? Environment, Development and Sustainability, 1–21. https://doi.org/10.1007/s10668-024-04498-5
Saleh, M. W. A., & Mansour, M. (2024). Is audit committee busyness associated with earnings management? The moderating role of foreign ownership. Accounting Research Journal, 37(1), 80–97. https://doi.org/10.1108/arj-04-2023-0106
Saleh, M. W. A., Zaid, M. A. A., Shurafa, R., et al. (2021), Does board gender enhance Palestinian firm performance? The moderating role of corporate social responsibility. Corporate Governance, 21(4), 685–701. https://doi.org/10.1108/CG-08-2020-0325
Shubita, M. F. (2023). Cash flow volatility and leverage: evidence from non-financial Jordanian companies. Innovations, 20(2), 286–294. http://doi.org/10.21511/imfi.20(2).2023.24
Shubita, M. (2020). The Impact of Capital Structure and Cash Holdings on Firm Value: An Empirical Study on Jordanian Industrial Listed Companies. Jordan Journal of Business Administration, 16(1).
Shubita, M. F., & Alsawalhah, J. M. (2012). The relationship between capital structure and profitability. International Journal of Business and Social Science, 3(16), 104–112.
Singh, N. P., & Bagga, M. (2019). The effect of capital structure on profitability: An empirical panel data study. Jindal Journal of Business Research, 8(1), 65–77. https://doi.org/10.1177/2278682118823312
Tesema, T. N. (2024). The effect of capital structure on performance: empirical evidence from manufacturing companies in Ethiopia. Cogent Economics & Finance, 12(1), 2300926. https://doi.org/10.1080/23322039.2023.2300926
Tran, T. T. H., Afifa, M. A., & Nguyen, N. M. (2023). Does the Capital Structure Affect the Discretionary and Non-discretionary Firm Performance? Evidence from Vietnam. Global Business Review, 09721509231194810. https://doi.org/10.1177/09721509231194810
Van Vu, H., Tran, T. Q., Van Nguyen, T., & Lim, S. (2018). Corruption, types of corruption and firm financial performance: New evidence from a transitional economy. Journal of Business Ethics, 148, 847–858. https://doi.org/10.1007/s10551-016-3016-y
Vo, X. V., & Ellis, C. (2017). An empirical investigation of capital structure and firm value in Vietnam. Finance Research Letters, 22, 90–94. https://doi.org/10.1016/j.frl.2016.10.014
Xu, J., Akhtar, M., Haris, M., et al. (2022). Energy crisis, firm profitability, and productivity: An emerging economy perspective. Energy Strategy Reviews, 41, 100849. https://doi.org/10.1016/j.esr.2022.100849
Yazdanfar, D., & Öhman, P. (2015). Debt financing and firm performance: an empirical study based on Swedish data. Journal of Risk Finance, 16(1), 102–118. https://doi.org/10.1108/JRF-06-2014-0085
DOI: https://doi.org/10.24294/jipd.v8i7.5119
Refbacks
- There are currently no refbacks.
Copyright (c) 2024 Marwan Mansour, Ismail Y. Yamin, Mohammed Saram, Ahmad Alduwailah, Nasser Al-Enzi, Belal Mahmoud AlWadi, Ahmad Marei
License URL: https://creativecommons.org/licenses/by/4.0/
This site is licensed under a Creative Commons Attribution 4.0 International License.