Purpose – The purpose of this paper is to investigate the effects of financial leverage on firm’s performance in Gulf Cooperation Council (GCC) countries. Additionally, this paper investigates the impact of recent financial crisis on GCC firms. Design/methodology/approach – The authors argue that the firm’s performance has a dynamic relationship that cannot be measured in cross-sectional data. Hence, the authors use a panel data to examine the effect of financial leverage on firm’s performance using the dynamic Generalised Method of Moments (GMM) estimator. Findings – The results from the GMM estimator show that companies’ leverage is a significant determinant of firm’s performance in GCC countries. The authors also found that financial crisis had a negative and significant impact on firms’ performance in GCC countries. Research limitations/implications – First, the data used in this paper rely on information published by the firms, and therefore, the robustness of the results were limited by the accuracy of the data provided. Second, failed firms were excluded from the study sample which may affect the results. Third, macroeconomic variables could be used in future research to investigate their impact on companies’ performance before and after the global financial crisis. Fourth, some other important variables (such as firm age and firm ownership) could be used in future studies to examine the effects of the 2008 financial crisis on companies’ performance. Practical implications – This research provides initial guidelines for policy makers in GCC countries to understand how to enhance the performance of their firms using financial leverage and other firm-specific factors. Originality/value – This is a first comprehensive study to investigate the effect of capital structure and financial crisis on firms’ performance in GCC countries.
EuroMed Journal of Business – Emerald Publishing
Published: Jul 6, 2015