Financial Leverage and Firm Performance in Moroccan Agricultural SMEs: Evidence of Nonlinear Dynamics

Imad Nassim (), Salma Nassim and Abdelkarim Moussa
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Imad Nassim: Multidisciplinary Research Laboratory (LAREM), HECF Business School, Fez 30000, Morocco
Salma Nassim: Multidisciplinary Research Laboratory (LAREM), HECF Business School, Fez 30000, Morocco
Abdelkarim Moussa: Faculty of Legal, Economic and Social Sciences, Sidi Mohamed Ben Abdellah University, Fez 30000, Morocco

IJFS, 2025, vol. 13, issue 3, 1-26

Abstract: This study investigates the nexus between leverage and financial performance in a sample of 54 Moroccan agricultural small- and medium-sized enterprises (SMEs) over the period of 2017–2022. Drawing on trade-off, pecking order, and agency theories, this analysis examines whether different levels of indebtedness influence performance, as measured by return on assets (ROA). Using panel data regression models, both linear and nonlinear specifications were tested to explore the potential curvature of the leverage–performance relationship. The empirical results reveal a significant and negative linear relationship between both short-term and long-term leverage and ROA, suggesting that increased indebtedness impairs financial performance. A quadratic specification reveals a persistently negative effect of short-term leverage and a U-shaped relationship between long-term leverage and ROA, indicating that performance may improve beyond certain debt thresholds. To address endogeneity concerns and validate the findings, dynamic panel estimation using the generalized method of moments (GMM) was employed, confirming the leverage’s adverse effects on performance. Thus, this study provides policy-relevant insights into optimal capital structure decisions for small agribusinesses and underscores the need for tailored financial strategies to support their sustainable development.

Keywords: leverage; financial performance; quadratic regression; firm performance; agricultural SMEs; dynamic GMM (search for similar items in EconPapers)
JEL-codes: F2 F3 F41 F42 G1 G2 G3 (search for similar items in EconPapers)
Date: 2025
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