Capital Structure Determinants and Financial Performance Analytical Study in Saudi Arabia Market 2004-2009

Abstract

Finance Scholars argue that developed market firms performance are affected by leverage, but little is empirically known about such implications in emerging economies such as Saudi Arabia. Moreover, little is empirically known about the relationship between capital structure determinants and financial performance in developed markets as well as the emerging ones. The results show that there is no relationship between capital structure determinants, leverage ratio and ROE. In addition, there is no relationship between some of the capital structure determinants (Tangibility & Risk) and ROA. This is basically due to the nature of the economy in Saudi Arabia which prevents debt and interest because of the Quranic law of economics (Shari’ah principle) which prohibited activities or elements such as usury (riba).

JEL Classification: G32, G10, G30