TITLE:
Capital Structure and Firm Performance for Non-Financial Saudi Firms: COVID-19 Crisis
AUTHORS:
Mounira Ben Arab, Imen Ben Saanoun, Saoussen Othmani, Wafa Garali
KEYWORDS:
Capital Structure, Performance, Financial Leverage, COVID 19, Saudi Firms
JOURNAL NAME:
American Journal of Industrial and Business Management,
Vol.14 No.3,
March
29,
2024
ABSTRACT: The
relationship between capital structure and firm performance has been
extensively investigated in the recent decades. However, only a few studies investigate
this relationship during the Sanitary Crisis. The paper investigates the
relationship between company performance and firm specific characteristics;
investment, free cash flow, and sales revenue. To our knowledge, this study is
the first to investigate the simultaneous impact of indicators, drawn from
multiple theories, on firms’ performances during the coronavirus pandemic. The
investigation has been performed based on a sample of 138 Saudi companies
listed on the Saudi Stock exchange Tadawul over two specific periods of the
COVID-19 pandemic; the pre-pandemic (2016-2019), and the pandemic (2020-2022). The research
findings suggest that the crisis had a negative impact on firms with greater
sensitivity to aggregate demand and international trade. Additionally, the
study found a positive correlation between sales revenues and financial
performance indicators, while leverage was linked to lower financial
performance. Moreover, increased investment during a crisis was found to create
agency problems and a free-rider problem, leading to decreased financial
performance. On the other hand, Free Cash Flow was found to be positively associated
with firm market performance, supporting agency theory.