Capital Structure and Profitability: Panel Data Evidence from the European Tourism Industry

Abstract

Finding the optimal debt-equity mix, where shareholders’ wel­fare and firm value are maximized is the goal of every business organiza­tion. The literature review revealed a broad spectrum of mixed and contra­dictory empirical findings on this topic, suggesting that the debate is far from over. This paper aims to assess the impact of capital structure on the profitability of the tourism industry in the European continent. This study is motivated by the importance that the tourism industry has for the economic development of European countries. The sample includes all European-list­ed firms in the tourism industry. Data is extracted from the Thomson Reu­ters (Refinitiv) database for a period of 10 years, i.e., 2010-2019. Panel data regression is used to determine the impact of the debt-to-assets ratio on the return on assets. The results reveal that the debt ratio has a significant neg­ative impact on ROA, but not on ROE.