A Panel Study on Capital Structure and Profitability in the MENA Region Tourism Industry

Abstract

Finding the optimal debt-equity balance is always challenging as it impacts performance and financial risk. Moreover, this balance changes with the industry. Our study aims to assess the impact of capital structure (CS) on firm profitability in the tourism industry. The sample consists of 71 listed firms from the tourism sector of the MENA region. Through a quantitative approach, we use pooled and static panel regression, examining the annual financial published data of the selected firms from 2010 to 2021 sourced through the Refinitiv database. The results show that an increase (decrease) of the debt (equity) portion in the capital structure impacts both ROA and ROE negatively and significantly, even after controlling for asset tangibility, size, liquidity, inflation, COVID-19 effects, and loss-making firms in the sample. The findings suggest that tourism firms in the MENA region should avoid an aggressive capital structure policy. To our knowledge, this study is the first one to examine the impact of CS on the profitability of the tourism industry for the entire MENA region, thus being of great value to firm-level policymakers and investors in the region.

Keywords: MENA, Tourism Industry, Profitability, Capital Structure, COVID-19

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