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Is Debt Governance Structure Relevant to Firm Operating Performance in a Transitional Market? A Dynamic Approach
Tarek I Eldomiaty,
United Arab Emirates University
Ehab K. A. Mohamed, Sultan Qaboos University
ABSTRACT. This paper examines the association between debt financing and firms’ operating performance. Debt is classified into a structure of two well-known types which are short-term debt and long-term debt. Firms’ operating performance is measures by three operating measures. The methodology utilizes the properties of the partial adjustment model to examine the association between the debt structure and firm’s operating performance. The results show that short-term borrowing is preferred and in most cases is renewed at multiple points of time on long-term basis. Regarding the association with firms’ operating performance, the results show that, in general, a relatively high association between debt financing and operating performance is realized which insures that debt structure has a governance role on firm 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.
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