Capital Structure and Financial Performance: Evidence from Oman‪.‬

Abstract This study examines the relationship between capital structure and financial performance. It is motivated by a desire to explain debt use by Omani firms. The results of this study suggest that, contrary to the Trade-off Theory of capital structure, there is a negative association between the level of debt and financial performance. This can be attributed to the high cost of borrowing and the underdeveloped nature of the debt market in Oman. The tax savings that the firm receives by using debt does not seem to be sufficient to outweigh the costs of using debt including the high interest cost.