Leverage and Corporate Performance: Fresh Insights into the Role of Firm Size and Threshold Effects in Saudi Arabia
Year: 2024
Type: article
Abstract: This study explores the relationship between leverage and corporate performance, focusing on firm size as a potential threshold variable. Using the Hansen threshold model, a sample of 126 Saudi firms listed on the stock exchange from 2010 to 2022 was analyzed to investigate whether firm size influences the leverage-performance relationship. Contrary to initial expectations, the findings reveal no threshold effects of firm size on this relationship. Across both small and large firms, leverage consistently has a negative impact on performance, measured through return on assets (ROA) and return on equity (ROE). These results suggest that firm size does not alter the negative effects of leverage on performance. The study provides valuable insights for corporate managers, emphasizing the need for cautious use of debt across firms of all sizes. Additionally, it highlights the broader implications for policymakers, particularly in fostering a supportive economic environment with lower interest rates and more developed capital markets to mitigate the adverse effects of leverage on corporate growth.
Author: Hanan Albalwy
Institution: Shaqra University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4403453142