This paper examines the association between firms' debt financing structure and operating performance. The paper focuses on debt as the firms' loans from banks, which is the general trend of debt financing in Egypt. Firms' operating performance is measured by three operating measures. The methodology utilises the properties of the partial adjustment model. The results show that short-term borrowing is preferred and in most cases is renewed at multiple points in time on a long-term basis. Regarding firms' operating performance, the results show the following: (1) In the high-debt firms, most of the changes in firms' assets are associated with the changes in short-term and long-term debt respectively. In addition, neither short-term debt nor long-term debt (as indigenous determinants) has significant effects on operating performance; (2) In the medium-debt firms, both short term and long-term debt help adjust the three performance measures to a target level; and (3) In the low-debt firms, long-term debt in particular has a negative effect on operating income/sales. In general, a relatively high association between debt financing and operating performance is realised, which insures that debt structure has a governance role on firms' operating performance. A general conclusion is that the premises of the agency theory of debt are highly likely transferable from developed markets to transitional markets.