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Abstract
This study aimed to examine the relationship between capital structure and financial performance in the firms listed in Abu Dhabi Securities Exchange (ADX), Profitability Ratios were used to express of the financial performance, and the Debt Ratio was used to express the Capital Structure. A random sample from the companies listed in ADX was taken to achieve the objective this study, it consisted of 48% of all companies in this financial market, and the study period extended from 2008 to 2015. The researcher used Statistical Package for the Social Sciences (SPSS), to analyze the study hypotheses, using ANOVA, model summery and coefficients for the study variables. And the results of this study showed that is positive relationship between the capital structure (Debt Ratio) and the Financial Performance (Profitability: Return on Assets) in ADX. And there is a negative relationship when we used the Return on Equity to express for the Profitability with the capital structure. The overall study results showed that there is significant relationship between capital structure and financial Performance in the companies listed in Abu Dhabi Securities Exchange, and the model of this study able to explanation almost 31% from changes happened in the profitability due to the capital structure. This result was consistent with some previous studies.
Highlights
The relationship between Capital Structure and financial performance in the firms is an important unsolved issue in the field of finance and it has been investigated extensively both theoretically and empirically
According to the study model above the researches derive the Mathematical model in order to measure the relationships between the capital structure and the financial performance in the Abu Dhabi Securities Exchange (ADX), the equation (1) below shows the model which was adopted by the researcher to build the study hypotheses: DRit = α + β1 * ROAit + β2 * ROEit + ē
H0: There is no significant relationship between the capital structure (DR) and the Financial Performance (ROA, Return On Equity (ROE)) in the companies listed in the Abu Dhabi Securities Exchange (ADX) for the period (2008-2015)
Summary
The relationship between Capital Structure and financial performance in the firms is an important unsolved issue in the field of finance and it has been investigated extensively both theoretically and empirically. The first view finds a positive relationship between profitability in firm and debt (Dessi & Robertson, 2003; Goddard et al, 2005; Weill, 2008; Margritis & Psillaki, 2010; Kebewar, 2012) They confirmed the agency cost theory that affirms higher leverage is associated with better firm performance. Darush and Peter (2015) use three-stage least squares (3SLS) and fixed-effects models to analyze a comprehensive, cross-sectoral sample of 15,897 Swedish SMEs operating in five industry sectors during the 2009-2012 period They confirm that debt ratios, in terms of trade credit, short-term debt and long-term debt, negatively affect firm performance in terms of profitability. Abor (2005) revealed a negative impact of long term debt on firm performance due to the high interest rate
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