The impact of capital structure on Firms performance in Morocco

ABSTRACT The paper employ Panel regression approach to investigate the impact of capital structure on firm's performance in Morocco, Based on the result of Haussmann test, fixed effect fit the first model better, thus it was utilized to examine the relationship between capital structure and firms performance. The annual data was collected from Moroccan authority of capital market and Casablanca stock exchange official website; it covers a period of three years from 2014 to 2016 of 53 Moroccan companies. The results of this research conclude a significant effect of three explanatory variables out of three, debt ratio (DR) has negative significant effect on return on asset (ROA), debt equity ratio (DER) has negative and significant impact on return on equity (ROE) and size has positive significant impact on firm performance using return on equity (ROE) as proxy. Therefore, the profitability of Moroccan firms decrease as much as level of leverage increase, Trade-off theory which assume a positive relationship between capital structure and firms performance is reject, financial risk of Moroccan companies is very high, as a consequence external financing should be reduced to improve the financial performance. Keywords: capital structure, performance of Moroccan firms, Trade-off theory, Panel regression