Capital Structure and the Profitability of MNCs: Evidence from the Egyptian Market (2006/2017).

Abstract

This paper explicates the relationship between different capital structure determinants and the
profitability of the listed Multinational Companies (MNCs) of Egyptian Exchange (EGX). Ten
MNCs data were collected from their public annual reports for a twelve year time period between
2006 and 2017. Firm performance was proxied by two profitability variables – Return on Asset
(ROA) and Return on Equity (ROE). Several capital structure determinants such as short-term
and long-term debt to assets and debt to equity ratios, tangibility, firm size and age and asset
growth rates of the MNCs were considered, after a comprehensive literature review. A detailed
descriptiveb analysis was conducted, followed by two OLS regression models ran on the dataset.
OLS regressions showed significant relationships on both profitability variables and short and
long term debt to assets and tangibility ratios. Long-term debt to assets had a negative significant
relationship with MNC profitability, while having short term debts improves performance.
Mixed results were found for other capital structure determinants with bprofitability proxies.
Overall, this research findings implies MNC finance managers should consider relying more on
short term financing options. This paper is among the first to look into MNC capital structure
decision making on the bEgyptian market perspective and provides significant directions for
MNC managers and stakeholders to consider for the future