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Effect of Debt Financing on Firm Performance: A Study on Energy Sector of Saudi Arabia

Author

Listed:
  • Anis Ali

    (College of Business Administration, Prince Sattam Bin Abdulaziz University, Al Kharj, Saudi Arabia)

  • Abdul Rahman Shaik

    (College of Business Administration, Prince Sattam Bin Abdulaziz University, Al Kharj, Saudi Arabia)

Abstract

The current research seeks to investigate the influence of debt financing (as assessed by the debt-equity ratio) on financial performance as evaluated by ROA and ROE. The information was taken from yearly reports issued by Saudi Arabian oil companies between 2012 and 2019. The current ratio (CR) was also incorporated as an interaction variable in the research. The findings indicate that debt financing has a detrimental influence on business financial performance. Furthermore, even after accounting for the interaction variable, the effect remains negative. Moreover, the business size has a negative link with the ROA and ROE.

Suggested Citation

  • Anis Ali & Abdul Rahman Shaik, 2022. "Effect of Debt Financing on Firm Performance: A Study on Energy Sector of Saudi Arabia," International Journal of Energy Economics and Policy, Econjournals, vol. 12(6), pages 10-15, November.
    • Handle: RePEc:eco:journ2:2022-06-2
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    References listed on IDEAS

    as
    1. Khaled Salmen Aljaaidi & Omar Ali Bagais, 2020. "Debt Finance, Inventory Management and Economic Value of Energy Industry in Saudi Arabia: Empirical Investigation," International Journal of Energy Economics and Policy, Econjournals, vol. 10(6), pages 347-353.
    2. Mohammad Mazibar Rahman & Umme Khadija Kakuli & Shahnaz Parvin & Ayrin Sultana, 2020. "Debt Financing and Firm Performance: Evidence from an Emerging South-Asian Country," Business and Economic Research, Macrothink Institute, vol. 10(1), pages 40-54, March.
    3. Detthamrong, Umawadee & Chancharat, Nongnit & Vithessonthi, Chaiporn, 2017. "Corporate governance, capital structure and firm performance: Evidence from Thailand," Research in International Business and Finance, Elsevier, vol. 42(C), pages 689-709.
    4. Rami Zeitun & Munshi Masudul Haq, 2015. "Debt maturity, financial crisis and corporate performance in GCC countries: a dynamic-GMM approach," Afro-Asian Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 5(3), pages 231-247.
    5. Darush Yazdanfar & Peter Öhman, 2015. "Debt financing and firm performance: an empirical study based on Swedish data," Journal of Risk Finance, Emerald Group Publishing, vol. 16(1), pages 102-118, January.
    6. Campello, Murillo, 2006. "Debt financing: Does it boost or hurt firm performance in product markets?," Journal of Financial Economics, Elsevier, vol. 82(1), pages 135-172, October.
    7. Abdulkadir Ali Tifow & Ozlem Sayilir, 2015. "Capital Structure and Firm Performance: An Analysis of Manufacturing Firms in Turkey," Eurasian Journal of Business and Management, Eurasian Publications, vol. 3(4), pages 13-22.
    8. Krishna Dayal Pandey & Tarak Nath Sahu, 2019. "Debt Financing, Agency Cost and Firm Performance: Evidence from India," Vision, , vol. 23(3), pages 267-274, September.
    9. Cole, Rebel A. & Sokolyk, Tatyana, 2018. "Debt financing, survival, and growth of start-up firms," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 609-625.
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    Cited by:

    1. Moez Dabboussi, 2024. "Does Debt Structure Explain the Relationship between Agency Cost of Free Cash Flow and Dividend Payment? Evidence from Saudi Arabia," JRFM, MDPI, vol. 17(6), pages 1-13, May.
    2. Anis Ali & Nadeem Fatima, 2023. "Growth and Financial Performance Governance by the Total Resources: A Case of Indian Downstream Oil and Gas Firms," International Journal of Energy Economics and Policy, Econjournals, vol. 13(3), pages 141-148, May.
    3. Anis Ali & Abdulrahman Alhassun & Nadeem Fatima, 2024. "Financial Performance and Total Resources: Trend and sensitivity Analysis of Indian Oil Exploration and Production Companies," International Journal of Energy Economics and Policy, Econjournals, vol. 14(3), pages 533-540, May.

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    More about this item

    Keywords

    Debt financing; financial performance; energy companies; return on assets; debt-equity; current ratio;
    All these keywords.

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L71 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Hydrocarbon Fuels
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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