The Effect of Capital Structure on the Financial Performance of Listed Companies in Bahrain Bourse

摘要

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.