Size-Threshold Effect in the Capital Structure–Firm Performance Nexus in the MENA Region: A Dynamic Panel Threshold Regression Model

Eman Fathi Attia (), Hamsa hany Ezz Eldeen and Sameh said Daher
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Eman Fathi Attia: Department of Accounting and Finance, Arab Academy for Science, Technology and Maritime Transport, P.O. Box 1029 Cairo, Egypt
Hamsa hany Ezz Eldeen: Department of Accounting and Finance, Arab Academy for Science, Technology and Maritime Transport, P.O. Box 1029 Cairo, Egypt
Sameh said Daher: Finance and Accounting Department, International Academy for Engineering & Media Science, 12411 Cairo, Egypt

Risks, 2023, vol. 11, issue 2, 1-13

Abstract: This paper investigates the nonlinear relationship between capital structure and firm performance in the MENA region using a sample of 499 listed firms over the 2007–2020 period, or 6986 firm-year observations. Specifically, we examine the size-threshold effect in the capital structure–firm performance nexus. To do so, this study applies a dynamic panel threshold regression model (DPTR). The findings show that there is a nonlinear relationship between debt and firm performance (Tobin’s Q, ROA, and ROE). Specifically, the threshold values of firm size for the three models are estimated at 9.126 (about $1 million), 15.48 (about $5 million), and 16.816 (about $20 million), respectively, between the low- and the high-sized regimes. In the lower regime, the firm’s value (Q) increases when debt increases; however, in the higher regime, this value decreases when debt increases. Furthermore, in the lower regime, the performances (ROA and ROE) of small firms decrease when debt increases; however, in the upper regime, when debt increases, the performances of large firms increase. The results are several robustness tests. These results support the predictions of signal, pecking order, and trade-off theories. Managers of large (small) MENA firms should increase (decrease) the use of debt to improve performance.

Keywords: debt; firm performance; MENA region (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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