The Effect of Capital Structure on Profitability of Basic Materials Saudi Arabia Firms

Abstract

This research investigated the relationship between capital structure and profitability of eight companies working in the basic material sector in Saudi Arabia during the period 2009 to 2018. The statistical techniques used are regression analysis, fixed effect model, random effect model, and Hausman test. The dependent variable is the return on equity ( ROE ). In contrast, independent variables are a short-term debt to total assets ratio ( SDA ), long-term debt to total assets ratio ( LDA ), and total debt to total assets ratio ( DA ). The results illustrate a negative relationship between short-term debt to total assets ratio ( SDA ) and profitability and this complement with studies like Hamid and others (2015) [1] and Abeywardhana (2015) [2], a negative relationship between long-term debt ( LDA ) and profitability which complement with studies like El-Sayed Ebaid (2009) [3], and positive relationship between total debt ( DA ) and profitability which complement with studies like Abor (2005) [4], Hamid and others (2015).