The Effect of Capital Structure on the Financial Performance of Listed Companies in Bahrain Bourse
Journal of Finance and Accounting
Volume 3, Issue 3, May 2015, Pages: 50-60
Received: Apr. 29, 2015;
Accepted: May 9, 2015;
Published: May 19, 2015
Views 8582 Downloads 566
Ahmad Mohammad Obeid Gharaibeh, Dept. of Banking and Finance, College of Business and Finance, Ahlia University, Manama, Kingdom of Bahrain
The study investigates the effect of capital structure on the financial performance of the 17 nonfinancial companies listed in the Bahrain Bourse. The investigation was performed using 5 years data for the period from 2009 to 2013. The impact of some key macroeconomic variables (gross domestic product growth and inflation rate) on the performance of the firm was also considered in this study. Multiple regressions represented by ordinary least squares (OLS) were used to examine the effect of the independent variables (capital structure, inflation rate and GDP growth) on the financial performance measures used (ROA, ROE, EPS, and Dividend Yield)). Capital structure is encapsulated by total liabilities to total assets (TLTOTA) and total equity to total assets (EQTOTA). The results indicate that capital structure, represented by total liability to total assets, has a significantly positive impact on the performance of the firm represented by ROE, but not by ROA, EPS, and DIYILD. The results also indicate that lagged performance measures of ROA, ROE, EPS, and DYIELD have a significantly positive influence on the current year’s performance measures of the firm. Moreover, the results indicate that lagged macroeconomic variables of inflation have a significantly negative relationship with certain performance measures (ROA, ROE, and EPS). Furthermore, the results indicate that gross domestic product growth (GDPG) has a significantly negative relationship with financial performance measured by EPS, but not those measured by ROA, ROE and DYIELD.
Ahmad Mohammad Obeid Gharaibeh,
The Effect of Capital Structure on the Financial Performance of Listed Companies in Bahrain Bourse, Journal of Finance and Accounting.
Vol. 3, No. 3,
2015, pp. 50-60.
Abbasali Pouraghajan, Esfandiar Malekian, Milad Emamgholipour, Vida Lotfollahpour & Mohammad Mohammadpour Bagheri (2012) “The Relationship between Capital Structure and Firm Performance Evaluation Measures: Evidence from the Tehran Stock Exchange” International Journal of Business and Commerce, Vol. 1, No. 9, 166-181. Retrieved from www.ijbcnet.com
Abdul, G .K. (2012). The Relationship of Capital Structure Decisions with Firm Performance: A Study of the Engineering Sector of Pakistan, International Journal of Accounting and Financial Reporting, 2(1), 2162-3082.
Hutchinson RW (1995), “The capital structure and investment decisions of the small owner-managed firm: Some explanatory issues”, Small Business Economics, vol. 7, pp.231.
Ibrahim El-Sayed E. (2009). “The Impact of Capita-structure choice on firm Performance: Empirical evidence from Egypt. “The Journal of Risk Finance, vol. 10, No.5, 477-487
IMF (2015), International Financial statistics, available at www.imf.org
Javed, B. & Akhtar,S. (2012) Interrelationships between Capital Structure and Financial Performance, Firm Size and Growth: Comparison of industrial sector in KSE: European Journal of Business and Management, 4(15), 148-157.
Kaumbuthu,A.J. (2011) “The relationship between capital structure and financial performance: a study of firms listed under industrial and allied sector at the NSE”,(MBA Dissertation, University of Nairobi), retrieved from http://erepository.uonbi.ac.ke.
Mahfuzah Salim and Raj Yadav (2012) “Capital Structure and Firm Performance: Evidence from Malaysian Listed Companies”, International Congress on Interdisciplinary Business and Social Science- Social and Behavioral Sciences 65 pp. 156 – 166.
Maina, L. & Kondongo, O. (2013) Capital Structure and Financial Performance in Kenya: Evidence from Firms Listed at the Nairobi Securities Exchange. Paper Presented at the Jomo Kenyatta University of Science and Technology Research Conference, Kenya.
Marc L. Nerlove (1968), “Factors Affecting Differences among Rates of Return on Investments in Individual Common Stocks,” Review of Economics and Statistics, 50: 312-31.
Modigliani, F. and M.H Miller (1958) “The Cost of Capital, Corporate Finance and the theory of investment”, American Economic Review, vol. 48, 261-97
Mubeen Mujahid and Kalsoom Akhtar (2014) “Impact of Capital Structure on Firms Financial Performance and Shareholders Wealth: Textile Sector of Pakistan”, International Journal of Learning & Development Vol. 4, no. 2. Retrieved from: http://dx.doi.org/10.5296/ijld.v4i2.5511
Mwangi, Lucy Wamugo, Makau, Muathe Stephen, and Kosimbei, George (2014) “Relationship between Capital Structure and Performance of Non-Financial Companies Listed In the Nairobi Securities Exchange, Kenya”. Global Journal of Contemporary Research in Accounting, Auditing and Business Ethics, Vol: 1 Issue 2.
Nimalathasan and Valeriu Brabete (2010), Capital structure and its impact on profitability: A study of listed manufacturing companies listed in Srilanka.
Ogebe, Ojah Patrick, Joseph Orinya Ogebe, and Kemi Alewi (2013) “The Impact of Capital Structure on Firms’ Performance in Nigeria”, online at http://mpra.ub.uni-muenchen.de/45986/ MPRA Paper No. 45986, posted 8. April 2013 20:10 UTC.
Prahalathan B, Dr. RPC Ranjani (2011). “The Impact of capital Structure –Choice on Firm Performance: Empirical Investigation of Listed companies in Colombo Stock Exchange, Sri Lanka”. International Journal of Research Commerce Management, Volume 2
Rajan, R. and L. Zingales, (1995), “What Do We Know about Capital Structure: Some Evidence from International Data,” Journal of Finance 50, 1421–1460.
Tharmila K. and Arulvel K. K. (2013) “The impact of the capital structure and financial performance: A study of the listed companies traded in Colombo stock exchange Merit Research Journal of Accounting, Auditing, Economics and Finance Vol. 1(5) pp. 106-117. Retrieved online at http://www.meritresearchjournals.org/aaef/index.htm
Wooldridge, (2004), Introduction to Modern Bayesian Econometrics by Tony Lancaster, Wiley-Blackwell (2004, 416pp)
Zuraidah Ahmad, Norhasniza Mohd Hasan Abdullah and Shashazrina Roslan (2012) “Capital Structure Effect on Firms Performance: Focusing on Consumers and Industrials Sectors on Malaysian Firms” International Review of Business Research Papers Vol. 8. No.5, 137 – 155.