Profitability and Capital Intensity: Moderating Role of Debt Financing

Abdulazeez Y. H. Saif-Alyousfi (), Abdullah Alsadan and Hassan Alalmaee
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Abdulazeez Y. H. Saif-Alyousfi: Financial Management Program, Department of Business Administration, College of Business Administration, University of Hafr Al-Batin, Hafar Al-Batin 39524, Saudi Arabia
Abdullah Alsadan: Department of Finance, College of Business Administration in Hawtat Bani Tamim, Prince Sattam Bin Abdulaziz University, Al-Kharj 16278, Saudi Arabia
Hassan Alalmaee: Department of Finance, College of Business Administration in Hawtat Bani Tamim, Prince Sattam Bin Abdulaziz University, Al-Kharj 16278, Saudi Arabia

Economies, 2025, vol. 13, issue 11, 1-27

Abstract: This study investigates the relationship between capital intensity, debt financing, and profitability in non-financial firms in Oman over the period 2012–2022. Using a robust panel dataset of 76 firms, the research explores how capital structure dynamics influence firm performance across different firm sizes and industries. The findings reveal that capital intensity significantly enhances profitability, and debt financing further strengthens this effect, with variations observed across firm size and sector. The analysis also identifies a non-linear (concave) relationship between capital intensity and profitability, indicating that while moderate capital investment improves firm performance, excessive capital accumulation may lead to diminishing returns. Larger firms, with better access to financial resources, exhibit a stronger positive relationship between debt financing and profitability, while smaller firms face more challenges due to limited access to capital. Industry-specific results indicate that capital-intensive sectors, such as Energy and Industrials, demonstrate a more pronounced effect of capital intensity on profitability compared to less capital-intensive sectors. The study also incorporates the effects of the COVID-19 pandemic, showing its significant influence on firm performance, particularly in sectors with high debt exposure. By integrating non-linear effects, firm size, industry heterogeneity, and pandemic shocks, this study provides novel insights into capital structure management in emerging economies, offering implications for both corporate decision-makers and policymakers aiming to enhance financial access and optimize debt strategies across sectors.

Keywords: capital intensity; debt financing; profitability; firm size; industry analysis; Oman (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2025
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