CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE IN MAJOR ALGERIAN FIRMS
This study examines the effect of capital structure on the financial performance of major Algerian firms over the period 2020–2024. A balanced panel of six large companies — Sonatrach, Biopharm, Saidal, El Aurassi, Alliance Assurances, and Sonelgaz — is analyzed using two accounting-based performance indicators (ROA and ROE) and two leverage proxies (Debt Ratio and Leverage). Panel data models are estimated, and appropriate specification tests are applied to select the optimal estimator. The findings reveal a statistically significant negative relationship between debt ratios and both ROA and ROE, with leverage exerting a stronger adverse effect on equity returns than on asset returns. Random Effects models are preferred over pooled OLS based on the Breusch–Pagan LM and Hausman specification tests, highlighting the importance of firm-specific heterogeneity. Firm size and sales growth are positively associated with financial performance. The results are consistent with Pecking Order, Trade-off, and Agency theories in the context of costly bank financing and underdeveloped capital markets. Financial managers are encouraged to adopt more moderate leverage levels, while regulators are advised to promote alternative market-based financing instruments to reduce firms' dependence on bank credit.