The influence of capital structure on company performance: Evidence from Egypt

Abstract

The capital structure decision is crucial for any company to maximize shareholders’ wealth and deal with its competitive environment. The research aims to examine the capital structure influence on company performance in Egypt. This research uses a sample of 168 Egyptian companies during 2012-2016 and applies panel data techniques. Eight hypotheses are proposed to test the influence of both the short-term debt and the long-term debt (as proxies of capital structure) on four performance measures (ROA, ROE, EPS, and Tobin’s Q) The research results indicate that short-term debt to assets significantly negatively affects all performance measures except for Tobin’s Q. Short-term debt to assets significantly positively affects the value of Tobin’s Q. On the other hand, the results show that long-term debt to assets affects significantly negatively return on assets but positively affects the return on equity. Therefore, the research concludes that the relevance of the capital structure theory to Egyptian companies’ behaviour is influenced by both debt and performance measures utilized.