Capital structure and firms financial performance : evidence from Palestine

Dissertant

Abu Tawhinah, Muhammad Shawqi Muhammad

Thesis advisor

Halas, Salim Abd Allah

Comitee Members

al-Daur, Jabr Ibrahim
Abu Muammar, Faris Mahmud

University

Islamic University

Faculty

Faculty of Commerce

Department

Department of Accounting and Finance

University Country

Palestine (Gaza Strip)

Degree

Master

Degree Date

2015

English Abstract

This thesis examines the impact of capital structure on firm’s financial performance.

The main objective of the study is to determine the overall effect of capital structure on corporate financial performance of Palestinian firms by establishing the relationship that may exist between the capital structure choices of firms in Palestine and their financial performance.

The study use three financial performance measures including return on assets (ROA), return on equity (ROE), and return on investment (ROI) as dependent variables and three capital structure measures including short term debt to total assets (STDTA), long term debt to total assets (LTDTA) and total debt to total assets(TDTA) as independent variables.

In addition, the firm size and industry type was used as control variables.

The population of this study consists of 49 Palestinian corporations listed on Palestine Exchange (PEX).

35 Corporations were selected on the basis of availability of information necessary for conducting the study and the readiness of annual financial reports for the period of 5 years from 2009-2013.

These corporations belong to five sectors in PEX as the follow: Banking and financial services, Insurance, Investments, Industry, and Services.

Descriptive statistics, correlation and multiple regressions were used to test the relations between variables.

The results show that there is a relationship between capital structure and corporate financial performance.

For the market, there is a negative influence for STDTA and TDTA on financial performance measurements except the ROE.

The results according to each sector in the market were as the following: For Banking, there is a positive influence for capital structure on firm's financial performance.

For Insurance, there is a negative influence for STDTA on financial performance measurements except the ROE.

For Investment Firms, there is a negative influence for STDTA on financial performance measurements except the ROA.

For Industrial firms, there is no significant influence for capital structure on firm's financial performance.

For Services firms, the results indicate positive influence for STDTA and TDTA on ROA and negatively on ROE, and ROI.

It can be concluded that Palestinian firms are majorly financed by mixing of equity and short term financing.

The study recommends the firms to achieve the best debt ratio with the minimum cost to maximize the financial performance.

Also, the firms should rely less on short term debt which formed the major part of their leverage and focus more on developing internal strategies that can improve their financial performance.

Main Subjects

Financial and Accounting Sciences

Topics

• Financing
• Accounting
• Capital
• Business enterprises
• Palestine
• Gaza Strip

No. of Pages

76

Table of Contents

• APA
• MLA
• AMA

Language

English

Data Type

Arab Theses

Record ID

BIM-685760