Capital Structure and Firm Performance: Evidence of Egypt During COVID Pandemic

Capital structure has gained considerable interest from businesses and academics in the financial management arena in the last decades. It has been realized that capital structure may affect corporate financial performance. Recent research shows that optimal capital structure could improve financial performance in some countries. Yet, the question of “how does capital structure dynamics affect financial performance during the Covid-19 pandemic” has not been thoroughly discussed and studied in Egypt. The empirical data were drawn from a sample of 667 observations for the period 2014-2021 in the Egyptian Stock Exchange. The mixed models are used to test the research hypotheses.  The empirical results showed that there is a negative significant relationship between capital structure and financial performance measured by ROA, ROE and stock price. Additionally, there was a significant negative impact for the COVID on the financial performance either using market based or accounting-based measures. The research findings can be supported by the Pecking Order Theory; which suggests that the negative relationship is due to the high cost of borrowing in developing countries. Since firms are confronting with the default risk due to having higher loans and paying higher interest.