ARTICLE

https://doi.org/10.1057/s41599-023-01571-8 OPEN

The relationship between investment intensity and

profitability measures from the perspective of
foreign investors
Mawih Kareem AL Ani 1✉ & Kavita Chavali1
1234567890():,;

Investment intensity is the level of investment in fixed assets that affects a company’s long-
term growth prospects. In order to make good investment decisions, investors pay more
attention to achieving a high level of investment intensity. This study examines the impact of
two non-GAAP measures of profitability—earnings before interest, tax, depreciation, and
amortization and earnings before interest and tax—on investment intensity in Gulf Coop-
eration Council (GCC) member countries. The study also examines the preference for two
non-GAAP measures of profitability from the perspective of foreign investors. The study
conducts panel data regressions using 205 firm observations covering the period 2010–2019
to examine the relationship between earnings before interest, tax, depreciation and amorti-
zation, earnings before interest and tax, and investment intensity. The study used various
statistical estimators to overcome the heterogeneity and endogeneity problems of panel data
and employed many diagnostic tests to increase robustness. The study finds that earnings
before interest, tax, depreciation and amortization are positively and significantly associated
with investment intensity in all GCC countries, but earnings before interest and tax are
negatively associated with investment intensity in these countries. The results indicate that
foreign investors prefer to use earnings before interest, tax, depreciation, and amortization to
make decisions about investment intensity. The main implication of the study is that capital
market regulators and foreign investors should use earnings before interest, tax, depreciation,
and amortization information as a guideline to improve investment intensity decisions and
achieve a better allocation of resources in capital markets.

1 Dhofar University, Salalah, Oman. ✉email: [email protected]

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8 1

ARTICLE HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-01571-8

I
Introduction
nvestment-intensive firms use a large portion of their version of earnings. Venter et al. (2014) found that non-GAAP
resources to purchase fixed assets such as machines as opposed earnings reported under a mandatory regime have higher value
to investing in labor. The investment-intensive concept gained relevance than GAAP earnings. Entwistle et al. (2010) noted that
importance in early 2000 in the Gulf Cooperation Council (GCC) investors highly weight non-GAAP performance metrics, which
region when governments and businesses started thinking of are more value-relevant than GAAP metrics. McClure and
reducing dependence on the oil and gas industry. Zakolyukina (2021) found that by removing transitory items,
Over the last few years, the GCC-nonfinancial industry has been such as depreciation and amortization, investment efficiency will
growing rapidly as a result of the vision of all six GCC countries that improve non-GAAP performance. Black et al. (2018) noted that
there should be a focus on increasing the economic growth of the the number of firms reporting earnings on a non-GAAP basis,
nonfinancial industry. The performance of the nonfinancial sector is such as EBITDA, dramatically increased over the last decade.
the third largest in terms of growth, and its contribution to GDP was Second, GCC countries are more interested in economic diver-
10.9% as of 2016 (Mishrif, 2018). GCC countries are diversifying sification, as they take serious actions to invest away from oil and
their economies by giving the nonfinancial sector more attention gas in order to develop policies in line with the expectations of
due to its potential role in attracting new investments. The non- foreign investors and investment in other related infrastructure.
financial sector includes heavy manufacturing companies, such as GCC countries give more weight to these investments as a source
steel, cement, etc., other than oil and gas. As the number of of revenue in the budget in their future visions. AL-Matari et al.
investment opportunities is unlimited for the nonfinancial sector (2021) pointed out that GCC countries were trying to have a good
along with the prospect of maximizing cash inflows, GCC countries investment climate by accepting more foreign investment, which
achieve financial stability and a high probability of establishing helps them to provide important platforms for new technology,
diverse companies based on oil and gas output. maintain a healthy balance of payment (BOP) account for the
In the economic literature, investment intensity, and capital gross domestic products (GDP) of the host country, create more
intensity are used interchangeably despite the differences job opportunities to reduce unemployment, and achieve eco-
between them (McGee, 2015). The main concern when working nomic integration. The association between GCC economies and
with both concepts is using the same proxies to measure them. foreign investments is a significant discussion, as these invest-
Investment intensity is important for economic growth and ments are new in these economies. Prior studies (e.g., Siriopoulos
sustainable development in the long term. The investment brings et al., 2021; Dkhili and Dhiab, 2018; Habibi and Karimi, 2017)
benefits to the firm in the future. Therefore, investors invest in have found that foreign investments are an important factor in
investment-intensive firms, predicting attractive future pro- GCC economic growth. GCC countries have a better economic
spects. These firms may also ignore current losses, keeping in environment and are capable of realizing the benefits of foreign
mind future growth prospects. investments because they have a higher degree of integration in
Investment-intensive industries need a high number of finan- global business. Third, capital intensity and investment intensity
cial resources to produce products or services and therefore play receive considerable interest in GCC countries. Al-Mejren (2019)
an important role in improving firm performance. A high level of asserted that GCC countries recognize the importance of
investment intensity may increase the profitability of the firm, investment intensity as an index that represents an appropriate
which will move the firm toward financial efficiency. Investment indicator for judging the effectiveness of policies aiming to
intensity represents an important variable that signals future maintain the balancing of manpower in the labor market.
profitability. Prior studies (e.g., Lee, 2010; Shaheen and Malik, Therefore, the results of this study add new empirical evidence
2012; Kalbuana et al., 2020; Maxim, 2021) find a positive rela- from emerging markets that have not been addressed prior, i.e.,
tionship between investment intensity and firm performance. The whether foreign investors prefer to use the EBITDA/EBIT metric
findings of these studies show that firms invest in fixed assets in making investment intensity decisions. Hence, the researchers
because they play an effective role in sustaining a firm’s success. believe that the findings of the study will add to the literature and
This study aims to examine the association between EBITDA, will help managers, regulators, and investors make better deci-
EBIT, and investment intensity in GCC countries. The study also sions and achieve better allocation of resources in capital markets.
aims to test the preference of foreign investors who use EBITDA or Universally, some studies have previously examined the asso-
EBIT in determining investment intensity. This is an important ciation between profitability and investment intensity. The results
issue because investors prefer to use a modified version of earnings are mixed, resulting in a positive or negative association between
such as non-GAAP rather than a GAAP version of earnings. Hence, capital investments and profitability. Mithas et al. (2012), Yu et al.
the study answers the following questions: are EBITDA and/or (2017), Sudiyatno et al. (2012), Pandya (2017), Pantea et al.
EBIT good indicator(s) for investment intensity in GCC economies? (2014), and Nangih and Onuora (2020) found a positive and
Do foreign investors prefer to use EBITDA and/or EBIT in deciding significant association between investment intensity and profit-
the investment intensity in GCC economies? We build a dynamic ability, indicating that higher investment intensity results in higher
model of investment and non-GAAP parameters where investors profitability. Other studies (e.g., Singh et al., 2016; Aktas et al.,
seek to maximize investment intensity. Our model shows the ability 2015) found a negative association between investment intensity
to use non-GAAP earnings in deciding investment intensity. and profitability, indicating that higher investment intensity
This study is conducted in GCC countries for multiple reasons. results in lower profitability. In discussing the association between
First, the previous literature focuses on EBIT and EBITDA as profitability and investment intensity, most of these studies use
performance metrics but does not use these parameters in GAAP profitability measures such as margin profit (Nangih and
investment-intensive firms such as those in this study. The Onuora, 2020), return on assets (Pandya, 2017), and net profit
majority of these studies (e.g., Ester and Ballkoci, 2017; Chukwu (Mithas et al., 2012). This study uses non-GAAP metrics, which
and Egbuhuzor, 2017; Amoroso et al., 2017; Oeta et al., 2019) are more important from the perspective of investors (Jan et al.,
used other parameters, such as ROA and ROE, which are cal- 2019). This study sheds light on the features of EBITDA and EBIT
culated and influenced by GAAP rules. To avoid the effect of as measures of profitability and evaluates their validity as indica-
GAAP parameters on investment, this study uses non-GAAP tors from a foreign investor perspective.
metrics: EBITDA and EBIT. Investors prefer using a modified In GCC countries, the association between investment intensity
version of earnings, such as non-GAAP, rather than the GAAP and profitability has not been addressed in the past despite its

2 HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-01571-8 ARTICLE

importance. Thus, the current study aims to fill this gap. All six intensive enterprises as the research object. The study aims to
GCC countries started diversifying their economies by focusing examine the association between investment intensity and prof-
on the performance of the nonfinancial industry as well as the itability in terms of non-GAAP measures which are EBITDA and
finance and banking sector by increasing investments in these EBIT. The uniqueness of the study is to test the preference of
industries. There is a major transition in all six GCC countries profitability metrics such as EBITDA and EBIT used by foreign
that diversified their economies to focus on the nonfinancial investors in deciding the investment intensity.
sector by increasing investments in these industries, which is why Prior studies used different measures of performance and capital
GCC countries are selected as the research subject. Investment investments. Pro proxies such as return on assets, share return,
intensity is one of the most important topics in GCC countries for productivity, Tobin’s Q, earnings, net income, and operating
the following reasons. First, the capital markets of GCC countries income are used to measure performance (Grozdic et al., 2020).
are developing and rapidly growing. Second, in GCC countries, According to Murwaningsari and Rachmawati (2017), capital
the attraction of many foreign investors from all over the world is intensity is measured by the ratio of the total asset turnover of
due to the internationalization scheme that has started and the the capital turnover equal to the total assets to total sales; the higher
free-market policies that have been adopted by governments the ratio is, the higher the capital intensity. Knesl (2019) and
(Siriopoulos et al., 2021). GCC markets are classified as emerging Kalbuana et al. (2020) pointed out that the capital intensity ratio
economies, as they are becoming more engaged with global indicates the level of efficiency of the total assets of the firm in
markets because of their growth. generating a certain volume of sales. Therefore, if the total assets
In GCC countries, the performance of the nonfinancial sector raise sales, the capital intensity will increase because more assets
plays an important role. First, the governments of GCC countries lead to more sales and finally generate a high level of profit. McGee
strongly believe that the nonfinancial sector is a good substitute (2015) used the change in capital share to measure investment
for the oil and gas sector. Second, these governments of GCC intensity. Kotšina and Hazak (2012) used investment intangible
countries want to ensure that the objectives are achieved to sus- fixed assets as a proxy to measure investment intensity. This proxy
tain investments in this sector. Third, the GCC countries is calculated as the difference between tangible fixed assets at the
encourage the private sector to invest in the nonfinancial sector to end of the year and tangible fixed assets at the beginning of the year
boost this sector through investment. Fourth, to make capital plus annual depreciation cost. Grozdic et al. (2020) used the growth
markets effective, the authority of capital markets in the GCC of fixed assets as a proxy to measure investment intensity, and
countries adopted a policy of attracting foreign investors by Fernández-Rodríguez et al. (2019) used the ratio of fixed assets to
giving them an opportunity to invest in this sector. total assets to measure investment intensity. Kalbuana et al. (2020)
This paper is structured into five sections as follows. Section used a fixed asset intensity ratio (total fixed assets/total assets) to
“Introduction” presents the introduction. Section “Literature measure investment intensity, as capital intensity represents how
review and hypothesis development” details the literature review much of a company’s fixed assets are out of its total assets.
on investment intensity and EBITDA and EBIT. Section “Meth- Following prior studies, Nangih and Onuora (2020) used the
ods” presents the methodological and analytical analysis frame- change in tangible assets during the year plus the annual
work of the study. Section “Results” presents the empirical results depreciation cost in their work. Adding annual depreciation cost
of the study, followed by the discussion and conclusion with enabled them to make a comparison between the performances of
included implications and suggestions for further study. companies in the same industry, making it more understandable
to the foreign investor since some differences exist among the
depreciation methods across the world.
Literature review and hypothesis development
Investment intensity. Investment intensity is the level of
investment in fixed assets and influences the growth prospects of Profitability and EBITDA and EBIT. Profitability is the main
the firm in the long run. It adds to capital assets today with the determinant of the growth and expansion of the private sector.
hope of increasing revenue in the future. It is a measure of how Chukwuma et al. (2022) argued that profitability is important for
efficiently the firm is operating and generating revenues. Among the survival and increase in the scale of business to achieve the
firms in similar industries, with similar processes and similar final goal of growth. Profitability is measured by many proxies,
profits, those with lower intensity are stronger, as they use fewer such as return on assets (Ester and Ballkoci, 2017), return on
assets to generate more revenue. Investment-intensive firms incur equity (Chukwu and Egbuhuzor, 2017), operating income
huge fixed costs and depreciation on equipment and do not (Amoroso et al., 2017), and earnings (Oeta et al., 2019). To the
appear to be attractive. Adiloglu and Vuran (2017) pointed out best of the authors’ knowledge, only one prior study used a dif-
that firms with high investment intensity need additional fixed ferent proxy to measure profitability, that is, earnings before tax,
assets due to high depreciation rates and high-interest payments interest, depreciation, and amortization (EBITDA).
on debt, often leaving them with negative earnings. Therefore, The present study uses two proxies to measure profitability,
they have to achieve a high level of profit to cover these negative namely, EBITDA and EBIT and uses two alternative measures of
earnings. Investment-intensive firms are highly susceptible to the profitability or earnings, such as non-GAAP measures that have
negative impacts of an economic slowdown as a decline in sales been demonstrated in prior studies. Aubert (2010) found that pro
leads to difficulty in incurring fixed costs and depreciation on forma numbers (non-GAAP) are much more informative than
equipment, thus depleting profits. When the economy is in a GAAP earnings. Investors prefer to use a modified version of
downturn, investment-intensive firms experience losses (Rustam earnings such as non-GAAP rather than the GAAP version of
et al., 2019). Such firms seek ways to generate higher revenue. earnings. Venter et al. (2014) found that non-GAAP earnings
Investment-intensive firms are those where there is a robust reported under a mandatory regime have higher value relevance
investment in fixed assets. The nature of these firms is different than GAAP earnings. The focus of EBITDA and EBIT is on the
from others where investment in fixed assets is low. The return- operating profits of the company. These performance measures
on-investment decreases as investment intensity increases. gained popularity in the 1980s when levered buyouts were the
Therefore, firms need to use synergies strategically, and appro- trend. It was used as an alternative performance measure to
priate performance standards should be applied. Taking these conventional methods, such as net income, operating income,
complexities into consideration, the study has taken investment- operating cash flow, and free cash flow (Finnerty and Emery,

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8 3

ARTICLE HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-01571-8

2004). EBITDA is used as a metric to compare companies with interest and taxes to state the operating profit, which is a good
different capital structures in the same industry; it is the third indicator to show managers and investors how a firm is per-
most commonly used metric for evaluating the earning capacity forming (Sevella and Mayuri, 2018). Rodrigues et al. (2017)
of companies in the US (Wahlen et al., 2015) and is considered to pointed out that EBIT focuses on the ability of the firm to generate
be a precise and nonbiased metric of performance. For example, sufficient earnings and cash flow from ongoing operations,
EBITDA is a good indicator to measure profitability for some excluding tax and interest, to be profitable, pay off debt, and fund
reasons. First, EBITDA is recommended as a proxy for cash flow ongoing operations.
and liquidity, which is a very important issue from a foreign Prior studies used EBIT as a performance indicator to predict
investor perspective (Iotti and Bonazzi, 2012; Mukhambetov the value of return on assets in relation to the growth in revenues
et al., 2020). Second, the studies in the global scenario used and cost control (Myskova and Hajek, 2017). Others have used
EBITDA as a preferable indicator because it removes the effects of EBIT to determine the effect of capital structure and financial
tax, interest, depreciation, and amortization, which vary from one performance (Ahmed and Bhuyan, 2020).
country to another. Adiloğlu and Vuran (2017) pointed out that The main result of the abovementioned studies finds a positive
EBITDA represents the real profit of the firm because it removes relationship between EBIT and the variables used in these studies.
the effects of financing decisions, accounting decisions, tax For example, Strouhal et al. (2018) noted that EBIT is more
environments, and depreciation expenses, which represent an informative when it is used as a nominator in calculating return
exorbitant amount of money, especially for industrial firms. on assets, as it can have a relatively significant impact on business
Third, Bouwens et al. (2019) asserted that when analyzing the activities. EBIT also has a high comparison power in the case of
performance of industrial firms, EBITDA is the best indicator firms with a higher level of debt in the capital structure because
because it excludes financing and investing effects, which allows EBIT is more sensitive to different levels of debt within the capital
investors to focus on operating profit as a measure of structure. Concerning the relationship between leverage and
performance. Fourth, Christopher and Judson (2012) elucidated EBIT, Ahmed and Bhuyan (2020) found that leverage impacts
that firms with increasing working capital and longer operating firm performance at a statistically significant level when this
cycles are likely to focus on EBITDA. Rozenbaum (2019) performance is measured by EBIT. Accordingly, the second
observed that traditionally high-leveraged and capital-intensive hypothesis is
companies use EBITDA as their performance tool. It is used to
reflect the ability of a company to service debt. According to Jan H2: A positive association exists between EBIT and
et al. (2019), firms with higher leverage and higher interest investment intensity.
expenses use EBITDA more frequently as a performance measure
than other measures. These reasons motivated the researchers to
Methods
take EBITDA and EBIT as the performance measures in
Sample selection. The sample of this study consists of 205
this study.
nonfinancial firms from the stock markets of KSA, Oman, Bah-
Using two profitability parameters means that the study tries to
rain, UAE, Kuwait, and Qatar from 2010 to 2019, and the data are
cover more than one angle. Providing more than one parameter
from S&P Capital IQ. Like other related studies (e.g. Chukwuma
will give more information and value to the investor when
et al., 2022; Jamil, 2022; Bibi and Sumaira, 2022). The study uses
entering new markets. However, by using non-GAAP metrics
secondary data, which involves the collection of quantitative data.
(such as EBITDA), the effect of amortization and depreciation
The total number of firms in this study is 683. This study excludes
will be removed because amortization and depreciation as
326 banks and financial institutions due to the different rules and
accounting issues are treated differently by each business and
regulations implemented in both organizations. Accordingly, the
country. Here, investors will not find any difficulties in under-
final sample of the study includes 2050 firm-year observations.
standing the content of financial information.
This study does not include data from 2008–2009 due to the
impact of the financial crisis and its consequences. Table 1 shows
EBITDA and investment intensity. Some prior studies (e.g., the details of the sample.
Chandrakumaramangalam and Govindasamy, 2010; Xin and Xu,
2012; Grazzi et al., 2016; Taipi and Ballkoci, 2017; Lian et al.,
Variables. This study has three groups of variables. The first is
2017; Korent and Orsag, 2018; Singh and Bagga, 2019) found a
the independent variable, which includes two variables, namely,
positive association between investments and profitability. In
EBITDA, which is defined as earnings before tax, interest,
contrast, other prior studies (e.g., Shima, 2010; Alipour et al.,
depreciation, and amortization. The second independent variable
2015; Zaigham et al., 2019; Bialowolski and Wezia, 2014;
is EBIT, defined as earnings before tax and interest. Prior studies
Reschiwat et al., 2020) found a negative association among dif-
(e.g., Entwistle et al., 2010; Iotti and Bonazzi, 2012; Rodrigues
ferent types of investments and profitability. These contrasting
et al., 2017; Black et al., 2018; Brown, 2020; Arena et al., 2021)
findings motivated us to study the relationship between a firm’s
used EBITDA and EBIT as measures of non-GAAP metrics
investment intensity and EBITDA with special reference to
because firms are able to adjust the profit in the income state-
companies in GCC countries. The data for the study are taken for
ments into these metrics. Sherman and Young (2018) pointed out
a period of 10 years from 2010 to 2019 for nonfinancial listed
that many firms prefer to disclose “the common unofficial metric
firms in the GCC. From the discussion of prior literature, no such
such as EBITDA” to enhance the comparability of financial
study was apparently conducted in the GCC countries. Therefore,
information. Arena et al. (2021) asserted that the reporting of
the first hypothesis is
both EBITDA and EBIT improves the relevance of financial
H1: No association exists between EBITDA and invest- information by increasing the predictive ability of earnings.
ment intensity. Following prior studies, this study uses EBITDA and EBIT to
measure profitability, as they have more value relevance from the
perspective of investors. The values of EBITDA and EBIT were
EBIT and investment intensity. Another indicator that is calculated and stated in the IQ capital database. The second group
commonly used as a proxy of profitability is earnings before includes the dependent variable, which is investment intensity
interest and tax (EBIT). This measure removes the effect of (INV). INV is measured by the total assets at the end of the year

4 HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-01571-8 ARTICLE

Table 1 Sample distribution by country.

KSA OMN QAT BAH KWU UAE Total

Total listed firms (1) 171 107 43 42 173 147 683
Financial firms (2) 50 31 17 24 118 86 326
Nonfinancial firms 3 (1–2) 121 76 26 18 55 61 357
Firms with losses (4) 4 0 0 0 11 0 15
Firms with missing data (5) 31 11 12 10 37 42 143
Number of firms—full data (3–4–5) 86 65 14 8 7 25 205
Number of observations (10 years) 860 650 140 80 70 250 2050

Table 2 Measurement of the variables. Table 3 Descriptive statistics by variables.

Variable Measurement Variables Observation Min Max Mean SD

Independent variables EBITDA 2050 −2.52 4.21 1.437 0.917
EBITDA Earnings + income EBIT 2050 −1.74 4.11 1.291 0.911
tax + interest + depreciation + amortization S 2050 −2.3 4.52 1.774 1.073
EBIT Earnings before interest and tax LEV 2050 0 1.64 0.208 0.211
Dependent variable AG 2050 0 1.82 1.289 0.288
Investment Total fixed assets at end-total fixed assets at GRO 2050 −19 48 0.017 1.782
intensity (INV) beg. + depreciation INV 2050 −3 1654 36.845 144.099
Control variables GP 2050 0 29 2.06 2.67
Size (S) Total debt SG 2050 0 136.1 126.50 2.823
Age (AG) No. of years from establishment year to
current years
Leverage (LEV) total debt/total assets Empirical model. The empirical model of this study is presented
Growth rate (GRO) Growth of firm in terms of profitability in the following equation:
Growth of market Growth of closing price of share
share price (GP) INVit ¼ α þ β1EBITDAit þ β2EBIit þ β3Sit þ β4AGit
Sales growth (SG) Growth of firm in terms of sales ð1Þ
þ β5LEVit þ β6GROit þ β7GPit þ β8SGit þ εit

Notice: firm I, year t and εi,t denote the residuals.

minus total assets at the beginning of the year plus the amount of The primary estimation method of the regression is generalized
depreciation and amortization (Kotsina and Hazak, 2012). INV is least squares (GLS) in STATA 14. Due to the characteristics of the
a dependent variable in some prior studies, such as Hasan et al. panel dataset (cross-sectional time series), there is a high level of
(2013), Shojaie et al. (2018), and Novotná et al. (2020), indicating confidence in the estimation of the regression.
that this variable needs more tests. Table 2 shows the variables The study uses many statistical tests to conclude the results of
and their measurement. the model. The study uses mean and standard deviation as
This study selected six control variables to be included in the descriptive statistics, a normality test (skewness/kurtosis) to check
regression equation. The first is a firm size or total debt. the normality of the data and whether the data is normally
Previous research has focused primarily on firm size and has distributed or not, variance inflation factor (VIF) to check the
proven that firm size and investment in fixed assets are degree of collinearity and correlation to measure the strength of
positively related (Hashmi et al., 2020; Jamil et al., 2022; Chen the relationship between the variables. The study also uses the
et al., 2019; Vinasithamby, 2015). The second control variable Breusch–Pagan/Cook–Weisberg test for the heteroskedasticity
is the age of the firm, i.e., the number of years since its problem and the Durbin–Watson test to find the autocorrelation
establishment. The age of the firm has a positive effect on problem. In addition, the study uses feasible general least-squares
investment in fixed assets (Nunes et al., 2017). The third (FGLS) regression to increase robustness and solve the problems
control variable is leverage, which is measured by the ratio of of diagnostic tests. In the studies using panel data, the main
total debt to total assets. Leverage is used by prior studies such problem of the data is the endogeneity problem. The study uses
as Jamil et al. (2022) and Grozdic et al. (2020), who used the dynamic ordinary least-squares (DOLS) estimator through
leverage to control the relationship between investment the panel data to overcome this problem. Hausman test (fixed
intensity and profitability. The fourth control variable is firm effect and random effect) is used to overcome the problem of
growth, which is measured by profit growth. According to heterogeneity in the panel data. Finally, the dynamic panel data
Fuertes-Callen and Cuellar-Fernandez (2019), growth that is (DPD) model is used to remove the unobserved heterogeneity
not accompanied by profitability does not seem sustainable in and to take into account the dynamics of changes in this model
the long term. The fifth control variable is sales growth, which (Sumaira and Bibi, 2022). In this study, several statistical models
is measured by the growth of sales. According to Kalash and or tests were conducted to improve the results and overcome the
Bilen (2021), sales growth has a positive role in mitigating problems in some of these statistical models. The results of this
leverage, as firms should increase sales levels to enhance their research are robust to the use of four-panel regression models and
financial performance. The sixth and final control variable is can help investors to have a general perspective on the
the growth market share price, which is measured by the relationship between EBITDA, EBIT, and INV.
growth of the closing market share price. Sukesti et al. (2021)
noted that the share price is a relative and proportional value of Results
a company’s worth, which is used to attract the attention of Descriptive statistics. Table 3 describes the statistics of all vari-
more investors. ables in the GCC countries in this study.

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8 5

ARTICLE HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-01571-8

Table 4 Results of Skewness/Kurtosis tests.

Obs. Pr(Skewness) Pr(Kurtosis) chi2(2) Prob > chi2

EBITDA 2050 0.4619 0.0106 7.08 0.0921
EBIT 2050 0.315 0.590 6.59 0.074
LEV 2050 0.3390 4.973 6.63 0.24747
AG 2050 −0.833 1.074 22.47 0.055
S 2050 0.3321 0.7331 1.06 0.5895
GRO 2050 0.26222 3.655 0.3390 0.26651
INV 2050 0.24859 0.24747 −1.045 0.85198
GP 2050 4.616 2.161 0.105 0.090
SG 2050 2.823 1.052 0.210 0.181

Table 3 shows that the mean EBITDA (1.437) is higher than

the mean EBIT (1.291). The results of EBITDA and EBIT Table 5 Variance inflation factor VIF.
indicate that the overall financial performance of firms in GCC
countries is quite high. However, the behaviors of EBITDA and Variables VIF
EBIT are the same in all GCC countries. The mean investment EBITDA 3.28
intensity is 36.875, indicating that the expenditure on capital is EBIT 3.07
high in GCC firms in the non-financial sector. Concerning the S 4.03
size of the firm, which is measured by total debt, the size is high LEV 1.79
in all GCC countries. This finding implies that firms use debts in AG 1.05
GRO 1.00
financing their investments and assets, as this will increase the
GP 1.18
risk and cost of debts. The results of 20.8% indicate that GCC SG 1.09
firms use debts in financing their assets with approximately 21%
and 79% from owner equity. The result of the age of the firms
indicates that the majority of the firms are experienced firms, as
they have good experience in their sector. The mean of the Correlation matrix. Table 6 shows the correlations between the
growth variable is 0.017, which is low, indicating that the growth variables in the model, as measured by the Pearson correlation
of profit is slow in GCC countries during the period of study. coefficient in the GCC countries (p < 1%).
The means of growth of share price and sales growth are 2.06 Table 6 shows that the relationship between EBITDA and INV is
and 126.50, respectively, which indicates that the firms have positive and significant at 0.01 in the model, and EBIT is also
high share price growth and are able to achieve good financial positively related to INV, but the correlation of EBITDA is higher
performance. than the correlation of EBIT. The results indicate that any increase
in EBITDA or EBIT will lead to an increase in INV, which has
economic significance for increasing investment in the GCC
Test for normality. The study uses skewness and kurtosis tests countries. However, an increase in EBITDA leads to a higher
to check the normality of the data and whether or not the data is increase in INV than an increase in EBIT. The relationship between
normally distributed. This test describes the probability dis- INV and S is positive and significant at 0.01 in the model,
tribution of a random variable around its mean. If the skewness indicating that investment intensity increases in large firms.
is close to zero, then the data set is normally distributed. The Regarding the relationship between INV and LEV, the result
results of the skewness/kurtosis test for normality are shown in shows a positive and significant relationship at 0.01 in the model.
Table 4. These results indicate that the increase in risk (LEV) leads to an
The results of Table 4 show that the values of skewness are increase in INV in order to achieve a high level of profit and to
between −0.5 and 0.5 (except for AG) and these values are compensate for the high level of risk. The relationship between INV
positive and the (Prob > chi2) is higher than 0.05, which means and AG (age) of the firm is negative and significant at 0.01,
that the distribution is approximately symmetrical. On the other indicating that older firms react negatively to an increase in
hand, the values of kurtosis are positive and close to the normal investment. Finally, the relationship between INV and GRO is
distribution, except for LEV and GRO. Ivanovski et al. (2015) positive but insignificant at 0.01, indicating that INV is not affected
claim that in the real world of investment and business, investors by profit growth. Finally, the relationship between INV and GP is
prefer the positively skewed value of earnings to the negative ones insignificant at 0.01 and it is insignificant with SG, indicating that
because they believe that the actual profit is higher than the INV is not affected by either sales growth or market share growth.
expected one. On the other hand, investors prefer the lower In contrast, Table 6 shows the problem of multicollinearity.
values of kurtosis that are not far from the mean. Accordingly, the Multicollinearity is a computational difficulty that occurs when
values of skewness and kurtosis of the variables in the model are two or more independent variables are highly correlated.
reliable for further analysis. According to Hair et al. (2006), the presence of high correlations
(generally 0.80 and above) is the first indicator of significant
multicollinearity. As shown in Table 5, the correlations between
Variance inflation factor (VIF) and correlation matrix. Yoo the independent variables, including the control variable, are low
et al. (2014) pointed out that the VIF measures the strength of and below 0.80, indicating that there is no multicollinearity
linear dependencies and the amount of variance of each regres- problem for all the study variables.
sion coefficient. In general, a VIF value >10 can be detrimental.
As shown in Table 5, the value of VIF in the model is <10, which Test for Heteroskedasticity and for autocorrelation. To make
means that the multicollinearity problem is not a concern. our data reliable for regression analysis, the study uses Breusch-

6 HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-01571-8 ARTICLE

Table 6 Correlation matrix.

EBITDA EBIT LEV AG S GRO GP SG INV

EBITDA 1.000
EBIT 0.582** 1.000
LEV 0.150** 0.107** 1.000
AG 0.005 −0.006 −0.204** 1.000
S 0.588** 0.374** 0.503** −0.110** 1.000
GRO 0.025 0.005 −0.004** −0.023 −0.011 1.000
GP 0.034 0.003 0.001 0.022 0.002 0.0003 1.000
SG 0.021 0.002 0.002 0.010 0.001 0.0002 0.001 1.000
INV 0.279** 0.121** 0.077** −0.079** 0.069** 0.0282 0.002 0.001 1.000

**Correlation is significant at the 0.01 level (two-tailed).

Hausman test is used (Bibi and Sumaira, 2022 as Fixed Effect (FE)
Table 7 The results of Breusch–Pagan/Cook–Weisberg test and Random Effect (RE) were used and the result of the Hausman
for heteroskedasticity. test shows that the RE test is adopted as the significant probability
is higher than 0.05 (Prob>chi2 = 0.9230) and (chi2(6) =
Breusch–Pagan/Cook–Weisberg test for heteroskedasticity (b−B)’[(V_b−V_B)^(−1)](b−B)) is 1.96.
Ho: Constant variance Table 8 shows the results of the GLS random effects regression
Variables: fitted values of Inv between EBITDA and EBIT and INV. According to the results in
chi2(1) 177.37 the table, the regression model is significant at 0.01, as EBITDA
Prob > chi2 0.0000 has a positive and significant effect on investment intensity
(84.318) (p-value < 0.01). EBIT is negatively and significantly
related to INV at 0.05 (−22.774) (p-value < 0.05). R2 supports the
results of this model as it is equal to (0.3175). These results
Pagan / Cook-Weisberg test for heteroskedasticity and it found indicate that the increase in EBITDA leads to an increase in
that heteroskedasticity is present in the data of this research investment intensity and the explanatory power of EBITDA (R2)
(chi2(1) = 177.37 and Prob > chi2 = 0.0000). Therefore, it seems explains 31.75% of the investment intensity. Conversely, the
that the OLS estimator is unreliable due to bias. Table 7 shows the results indicate that EBIT is not a good indicator to decide on
results of the Breusch–Pagan/Cook–Weisberg test for INV and, moreover, it may give a negative indication of the
heteroskedasticity. impact on INV.
On the other hand, the study examines the data against the The analysis of the relationship between the control variables
autocorrelation problem as the study uses Durbin–Watson (DW) (S, LEV, AG, and GRO) and INV shows different results. S and
test. The value of the DW statistic is 1.415342 which indicates GRO have a positive and significant effect on INV at 0.01,
that the data has an autocorrelation problem. indicating that the larger the firm, the higher the INV meets the
production requirements. GRO has a positive and significant
FGLS regression, DPD analysis, GLS regression, and DOLS effect on INV at 0.01. The result of GRO indicates that
regression. Table 8 shows the results of FGLS, DPD, GLS, and investments are influenced by the future direction of profitability
DOLS, respectively. of the firms. LEV and AG have insignificant effects on INV,
indicating that these variables have no effect on INV.
Feasible general least squares (FGLS) regression. As the study
found the problems of heteroskedasticity and autocorrelation,
Dynamic panel data (DPD) model. The Hausman test indicated
and to increase robustness and solve the problems of diagnostic
that the GLS random effect model should be used to examine
tests, the study used feasible general least squares (FGLS)
the effect of EBITDA and EBIT on INV. In order to improve the
regression. FGLS measures the coefficients and covariance matrix
results of the GLS random effect model and to remove the
for a multiple linear regression model in the presence of non-
unobserved heterogeneity in this model, the DPD model is used.
spherical innovations and an unknown covariance matrix Liu
The results of DPD as shown in Table 8 indicate that the coef-
(2021). FGLS is more efficient than ordinary least squares (OLS)
ficient of EBITDA is large (177.934) which is significant at 0.01,
in the presence of heteroskedasticity and autocorrelation. The
but the coefficient of EBIT (−46.202) is negative and significant
results of FGLS as shown in Table 8 show that EBITDA and LEV
at 0.01, which confirms that these two independent variables have
have a positive and significant effect on INV with 0.01 and 0.05,
an effect on INV.
respectively, while S and AG have a negative and significant effect
on INV with 0.01. However, EBIT and GRO have an insignificant
effects on INV at 0.05. The results of FGLS show that there is no Dynamic ordinary least square (DOLS) model. After correcting
heteroskedasticity and no autocorrelation in the model. for heteroskedasticity and serial correlation problems, DOLS was
used to increase robustness as the panel data suffered from
Hausman test, random effect (RE) vs. fixed effect (FE). In order endogeneity problems (Bassey et al., 2022). The DOLS results
to improve the regression model and as the results of OLS are confirm that EBITDA has a positive and significant effect on INV
unreliable, this study uses GLS regression which is used to deal at 0.01, but EBIT does not have such an effect as the coefficient is
with situations where the OLS estimator is not efficient due to the insignificant at 0.05. Also, LEV has a positive and significant
problem of homoskedasticity and lack of serial correlation. To effect on INV, while AG has a negative and significant effect at
overcome the problem of heterogeneity in the panel data, the 0.01. Finally, S and GRO have an insignificant effect on INV.

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8 7

ARTICLE HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-01571-8

Table 8 Results of FGLS, DPD, GLS, and DOLS.

FLGS GLS-Random DPD (Robust) DOLS

Coef. P > | z| Coef. P > | z| Coef. P > | z| Coef. P > | z|

EBITDA 80.790 0.002 84.316 0.000 177.934 0.000 267.013 0.000
EBIT −10.792 0.590 −22.771 0.046 −46.202 0.000 −58.975 0.204
LEV 165.610 0.000 40.501 0.082 85.148 0.000 174.613 0.004
AG −47.812 0.006 4.035 0.783 12.462 0.459 −310.245 0.000
S −23.028 0.000 14.694 0.027 19.283 0.019 −30.522 0.169
GRO 1.910 0.386 2.153 0.017 1.284 0.143 0.9108 0.799
Constant 53.788 0.035 −93.2978 0.000 −20.659 0.000
F-value – 8.790 – –
Prob > ch2 0.000 0.000 0.0000 0.000
R2 – 0.3173 – 0.25041
Homoscedastic – – –
No autocorrelation – One-step results –
Wald chi2(6) 55.33 – 440.33 320.25
Instruments for differenced equation
GMM-type: L(2/.).ebitda L(2/.).ebit
Instruments for level equation Standard: _cons

In summary, EBITDA shows a consistent effect on INV as this

effect is positive and significant at 0.01. This result is consistent Table 9 GLS of EBITDA vs. EBIT and the impact of foreign
with Pandya (2017), Jan et al. (2019), Kotsina and Hazak (2012) investments.
who find that EBITDA has a positive effect on investment
intensity, indicating that in capital-intensive firms, using EBITDA
Variables B Sig.
as a performance indicator is preferable. On the other hand, EBIT
EBITDA*FI 0.00124 0.001
shows different results and shows an insignificant effect under
EBIT*FI −0.00135 0.001
DOLS. The control variables show an inconsistent effect on INV,
but under the DOLS model, both LEV and AG have a positive
and significant effect on INV. applied GLS regression per the following equation:
INVi; t ¼ α þ β1EBITDAi; t  FIi; t þ β2EBITi; t  FIi; t þ εi; t
EBITDA vs. EBIT and the impact of foreign investments. ð2Þ
Foreign investment has a positive impact on economic growth in
the long run (Yusuf et al., 2020; An and Yeh, 2021; Bibi and FI is the percentage of equity shares held by all foreign
Sumaira, 2022). Countries with a better economic environment investors by the end of the year, and it is calculated as the total
are better able to realize the benefits of foreign investment, as number of shares held by FI over the total number of shares
these countries have a higher degree of integration in global outstanding. Table 9 shows the results of GLS regression.
business. The results show that foreign investors prefer to use EBITDA
Foreign investment has a positive impact on many economic in GCC countries, as the relationship is positive and significant
variables (Jamil, 2022). Some previous studies discuss the among EBITDA, FI, and INV, which indicates that the increase in
preference for both EBIT and EBITDA from the perspective of EBITDA resulted in a higher increase in foreign investment. The
foreign investors. Lie and Lie (2002) pointed out that the EBITDA relationship among EBIT, FI, and INV is negative, indicating that
measure provides better estimates of firm value than the EBIT foreign investors did not use EBIT as an indicator to make any
measure. Financial analysts use EBIT and EBITDA as operating decision on their investment. The results indicate that foreign
measures because net income information is insufficient to reveal investors did not prefer to use EBIT as an indicator of the
the real performance of companies. According to Adiloğlu and performance of their investments.
Vuran (2017), both EBIT and EBITDA are better than net income
because they allow investors to focus on operating profitability as Discussion
a measure of performance by excluding the non-operating effects The relationship between EBITDA and investment intensity or
that vary from one firm to another, such as financial decisions capital investments appears to be positive in GCC countries based
(interest) and government decisions (taxes). Sui (2017) argues on the model used in the study at the 0.01 level of significance,
that EBITDA can discriminate between firms that look similar which is similar to previous studies. The findings of this study
when judged in terms of EBIT, as EBIT tends to be more stable confirmed the main research hypothesis and empirical expecta-
than operating income, and EBITDA tends to be more stable than tion that the relationship between capital investments and
EBIT, in business valuation. Iotti and Bonazzi (2012) discuss that EBITDA is positive. The GCC-listed firms diversified from the oil
the EBITDA model is considered a useful measure in explaining and gas sector and then started investing in new investment
financial performance and the relationship between accounting projects. These investments are highly leveraged at capital-
and cash flow data. Rozenbaum (2019) found that the disclosure intensive firms that require considerable depreciation calculations
of EBITDA is useful for managers as well as investors. as they have high depreciation rates and large interest payments
Furthermore, there is no evidence of opportunistic motives for on debt, making them focus on increasing their profit to cover
managers to explain the disclosure of EBITDA. these expenses. Therefore, using EBITDA rather than net income,
To determine the effect of interaction among foreign invest- comparing the performance of these firms in the same industry is
ment (FI), EBIT, and EBITDA on investment intensity, the study easier. In all GCC-listed companies, EBITDA is positive during

8 HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-01571-8 ARTICLE

5 The results of this study filled the research gap in the area of
investment intensity, as the study provided empirical evidence
4
from one business environment that has not been addressed
3 before. This evidence enhances the idea of the importance of non-
2 GAAP measures in deciding about investment intensity.
1
The study can guide investors, policymakers, and managers.
First, policymakers and regulators should devise a measurement
0
of EBITDA and EBIT that can be used to regulate and control it,

1106
1
66

326

1041

1171
1236
1301
1366
1431
1496
1561
1626
1691
131
196
261

391
456
521
586
651
716
781
846
911
976
-1 as it will raise market confidence and enhance the relationship
-2 between accounting information and market equity. The dis-
closure of EBITDA and EBIT metrics is crucial for the success of
-3
future reforms to improve market efficiency, investor protec-
EBITDA EBIT tion, and investments in emerging economies, such as the GCC.
The results of this study suggest that managers should develop
Fig. 1 The both profitability measures, EBITDA and EBIT, attempt to and maintain high-quality disclosure of investment and profit-
represent the cash profit generated by the firm’s operation. This ability that provides a general framework for using non-GAAP
indicates that the fluctuations of EBITDA and EBIT reflect the fluctuations in (IFRS) measures along with GAAP (IFRS) measures. Stake-
the firm’s operation. holders are interested in more relevant and reliable information.
Therefore, regulators of the capital market should use profit-
the sample period, although it fluctuates in some years, which ability information as guidelines to improve investment inten-
indicates that the goals of these investments are achieved. These sity decisions to enhance the allocation of resources in capital
results encouraged owners to increase investments in infra- markets. This study has some limitations. First, the study uses
structure in GCC countries. EBIT has the same direction as firm financial reports to measure the main variable of the study.
EBITDA despite being less than EBITDA and having more Second, it only focuses on one measure of investment intensity,
fluctuations. Figure 1 shows the directions of both EBITDA and which is the change in tangible assets. Other measures of
EBIT during the period of the study in GCC countries. investment intensity may yield different results and provide
Conversely, EBIT does not seem to be a good indicator in GCC additional insights into investment intensity. Third, it only
countries. EBIT and investment intensity are negatively related investigates the potential association between Investment
and do not give a positive signal on investment intensity. One intensity and profitability and does not establish any causal
reason behind this finding is the inclusion of the depreciation of relationship between them, as investment intensity can affect
fixed assets in calculating EBIT, as it can lead to varying results profitability and vice versa. However, this study does not
when compared with firms in different industries and different address this relationship. Finally, the study might not be gen-
countries. The amount of depreciation and amortization in the eralized to other regions, but it adds some value, as its findings
listed firms is high. Therefore, EBITDA is more than EBIT in all suggest several interesting associations.
these firms. This finding shows that EBITDA represents operating
cash flow better than EBIT because EBITDA removes the effect of
depreciation and amortization. Data availability
The results illustrate that foreign investors prefer to use The datasets generated during and/or analyzed during the current
EBITDA in deciding investment intensity. This preference is study are available from the corresponding author on reasonable
explained by the fact that foreign investors assess the ability of the request.
firm to generate cash, and EBITDA represents a good approx-
imation of cash. This finding is in line with the studies of Cassis Received: 29 July 2022; Accepted: 20 February 2023;
(2002). The results show that this relationship is indeed increased
in the leveraged firms in comparison with less leveraged firms,
and leverage has a positive effect on INV in these countries,
providing a balance between risk and return.
References
Adiloglu B, Vuran B(2017) he importance of EBIT–EBITDA disclosure in annual
Conclusion reports: a comparison from Turkey Int J Soc Sci Educ Res 3:397–405
This study aims to examine the association between Earnings Ahmed R, Bhuyan R (2020) Capital structure and firm performance in Australian
before Interest, Tax, Depreciation, and Amortization (EBITDA), service sector firms: a panel data analysis. J Risk Financ Manag 13:214.
Earnings before Interest and Tax (EBIT) and investment intensity https://doi.org/10.3390/jrfm13090214
Aktas N, Croci E, Petmezas D (2015) Is working capital management value-
in GCC countries. Additionally, this study aims to test whether enhancing? Evidence from firm performance and investments. J Corp
foreign investors prefer to use EBITDA or EBIT in deciding Finance 30:98–113
investment intensity. The study employs two non-GAAP profit- Alipour M, Mohammadi MFS, Derakhshan H (2015) Determinants of capital
ability measures because most stakeholders, such as foreign structure: an empirical study of firms in Iran. Int J Law Manag 57:53–83
investors, prefer to use non-GAAP measures to show the results AL-Matari EM, Mgammal MH, Senan NAM, ALHebri AA (2021) Determinants of
Foreign Direct Investment in GCC Countries: An Empirical Analysis. J Asian
of firm performance. Finance Econ Bus 8(4):0069–0081
The results of the study indicate that EBITDA has a statistically Al-Mejren AA (2019) Credibility of Growth and Development Measures in Rentier
positive impact on investment intensity in GCC countries at 0.01. Economies: The Case of GCC. J Econ Dev Studies. 7(4):83–100. https://doi.
The results show that EBIT has a statistically negative impact on org/10.15640/jeds.v7n4a8
investment in these countries. The results indicate that invest- Amoroso S, Moncada-Paternò-Castello P, Vezzani A (2017) R&D profitability: the
role of risk and Knightian uncertainty. Small Bus Econ 48:331–343. https://
ment intensity is positively influenced by EBITDA, in line with doi.org/10.1007/s11187-016-9776-z
the study of Kotsina and Hazak (2012). Therefore, this study An TH, Yeh TKC (2021) Growth effect of foreign direct investment and financial
recommends considering EBITDA in deciding the investment development: new insights from a threshold approach. J Econ Dev
intensity. 23:144–164. https://doi.org/10.1108/JED-08-2020-0108

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8 9

ARTICLE HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-01571-8

Arena C, Catuogno S, Moscariello N (2021) The unusual debate on non‑GAAP Jamil MN, Rasheed A, Mukhtar Z (2022) Corporate social responsibility impacts
reporting in the current standard practice. The lens of corporate governance. sustainable organizational growth (firm performance): an empirical analysis
J Manag Gov 25:655–684. https://doi.org/10.1007/s10997-020-09515-z of Pakistan stock exchange-listed firms. J Environ Sci Econ 1:25–29
Aubert F (2010) The relative informativeness of GAAP and pro forma earnings Jan B, Ties DK, Arnt V (2019) The prevalence and validity of EBITDA as a
announcements in France. J Account Tax 2:1–14 performance measure. Compat Control Audit 25:55–80
Bassey EN, James HT, Friday BA (2022) Autoregressive distributed lag approach Kalash I, Bilen A (2021) The Role of Sales Growth in Determining the Effect of
(ARDL) to corruption and economic growth nexus in Nigeria. J Environ Sci Operating Leverage on Financial Performance: The Case of Turkey. J
Econ 1:8–14 Account Finance 91:185–198. https://doi.org/10.25095/mufad.842340
Bialowolski P, Weziak-Bialowolska D (2014) External factors affecting investment Kalbuana N, Solihin, Saptono, Yohana, Yanti DR (2020) The influence of capital
decisions of companies. Economics 8:1–21. https://doi.org/10.5018/ intensity, firm size, and leverage on tax avoidance companies registration in
economics-ejournal.ja.2014-11 Jakarta Islamic Index (JII) period 2015–2019. Int J Econ Bus Account Res
BiBi R, Sumaira (2022) The effect of foreign direct investment and financial 4(3):272–278
development on economic growth: evidence from global income countries. J Knesl J (2019) Capital intensity and investment shocks: implications for stock
Environ Sci Econ 1(1):36–51 returns. Available at SSRN: https://ssrn.com/abstract=3019782 or https://doi.
Black DE, Christensen TE, Ciesielski JT, Whipple BC (2018) Non-GAAP org/10.2139/ssrn.3019782
reporting: Evidence from academia and current practice. J Bus Finance Korent D, Orsag S (2018) The impact of working capital management on profit-
Account 45(3-4):259–294 ability of Croatian software companies. Zagreb Int Rev Econ Bus 21:47–65.
Bouwens J, Kok TD, Verriest A (2019) The prevalence and validity of EBITDA as a https://doi.org/10.2478/zireb-2018-0007
performance measure. Account Audit Control 25:55–105 Kotsina S, Hazak A (2012) Does investment intensity impact company profit-
Brown NC (2020) Going Public: The Benefits and Pitfalls of Non-GAAP Metrics. J ability? A cross-country empirical study. In Lin CH (Eds): Proceedings of the
Edu Res Account 14(2):145–157. https://doi.org/10.17524/repec.v14i2.2670 2nd international conference on economics, trade and development, IPEDR
Cassis J (2002) Cash flow or EBITDA? Can’t we have both? RMA J, Risk Man- 36. IACSIT Press, Singapore
agement Association. Philadelphia, USA. 26–34 Lee S (2010) Effects of capital intensity on firm performance: U.S. Restaurant
Chandrakumarmangalam S, Govindasamy P (2010) Leverage—an analysis and its Industry. J Hosp Financ Manag 18(1):2–14. https://scholarworks.umass.edu/
impact on profitability with reference to selected cement companies in India. jhfm/vol18/iss1/2
Eur J Econ Finance Adm Sci 27:53–65 Lian LL, Ramakrishnan S, Vaicondam Y, Hishan SS (2017) Capital investment and
Chen Z, Harford J, Kamara A (2019) Operating leverage, profitability, and capital profitability across Malaysian consumer product sector. Adv Sci Lett
structure. J Financ Quant Anal 54:369–392 23:9282–9286. https://doi.org/10.1166/asl.2017.10071
Christopher MB, Judson WR (2012) EBITDA: USE IT…OR LOSE IT? Int J Bus Lie E, Lie HJ (2002) Multiples used to estimate corporate value. Financ Anal J
Account Finance 6:84–92 58:44–54. https://doi.org/10.2469/faj.v58.n2.2522
Chukwu GJ, Egbuhuzor CA (2017) Tangible assets and corporate performance: Liu H (2021) R&D investment intensity, green energy technology innovation and
evidence from the manufacturing industry in Nigeria. Res J Financ Sustain construction firm growth performance. In: Proceedings of the 3rd Interna-
Report 2:271–277 tional Conference on Civil Architecture and Energy Science (CAES 2021),
Chukwuma OV, Ugwu JI, Babalola DS (2022) Application of forensic accounting Organised by E3S Web of Conferences April 2021 https://doi.org/10.1051/
in predicting the financial performance growth of MTN mobile commu- e3sconf/202124802006
nication in Nigeria. J Environ Sci Econ 1:67–76 Maxim LG (2021) The impact of capital intensity, indebtedness and the size of
Dkhili H, Dhiab LB (2018) The relationship between economic freedom and FDI retail companies on profitability. Int J Multidiscip Curr Educ Res
versus economic growth: evidence from the GCC countries. J Risk Financ 3(6):107–114
Manag 11:81 McClure C, Zakolyukina AA (2021). Non-GAAP reporting and investment (May
Entwistle GM, Feltham GD, Mbagwu C (2010) The Value Relevance of Alternative 23, 2022). Chicago Booth Research Paper No. 19–27, Available at SSRN:
Earnings Measures: A Comparison of Pro Forma, GAAP, and I/B/E/S https://ssrn.com/abstract=3507069 or https://doi.org/10.2139/ssrn.3507069
Earnings. J Account Audit Finance 25(2):261–88 McGee J (2015) Investment intensity. Wiley encyclopedia of management 3e,(12)
Ester T, Ballkoci V (2017) Capital expenditure and firm performance evidence Strategic management. Wiley Online Library https://doi.org/10.1002/
from Albanian Construction Sector. Eur Sci J 13:231–238. https://doi.org/10. 9781118785317.weom120051
19044/esj.2017.v13n28p231 Mishrif A (2018) Industrialization and diversification strategies in the GCC
Fernández-Rodríguez E, García-Fernández R, Martínez-Arias A (2019) Influence of Countries. In: Proceedings of the International Conference on Innovation
ownership structure on the determinants of effective tax rates of Spanish and Economic Diversification in GCC’s National Development Plans (IED18)
companies. Sustainability 11:1441. https://doi.org/10.3390/su11051441 Organized by Arab Open University in Kuwait, 14 and 15 March 2018. pp.
Finnerty J, Emery D (2004) The value of corporate control and the comparable 1–12. http://www.aou.edu.kw
company method of valuation. Financ Manag 33:91–100 Mithas S, Ali RT, Bardhan I, Goh JM (2012) Information technology and firm
Fuertes-Callen Y, Cuellar- Fernansez B (2019) Inter-relationship between firm profitability: mechanisms and empirical evidence. MIS Quarterly 36:205–224
growth and profitability in a context of economic crisis. J Bus Econ Manag Mukhambetov T, Yerdavletova F, Kurbanova K, Mukhametzhanova Z, Sadva-
20(1):86–106. https://doi.org/10.3846/jbem.2019.6928 kassova K (2020) Analysis of financial indicators used to assess the sustain-
Grazzi M, Nadia J, Tania T (2016) Dynamics of investment and firm performance: ability of companies. Organised by IFT E3S Web of Conferences 208, 03049.
comparative evidence from manufacturing industries. Empir Econ 51:125–179 https://doi.org/10.1051/e3sconf/202020803049
Grozdic V, Mari CB, Radisic M, Sebestova J, Lis M (2020) Capital investments and Murwaningsari E, Rachmawati S (2017) The influence of capital intensity and
manufacturing firms’ performance: panel-data analysis. Sustainability investment opportunity set toward conservatism with managerial ownership
12:1689. https://doi.org/10.3390/su12041689 as moderating variable. J Adv Manag Sci 5:445–451. https://doi.org/10.18178/
Habibi F, Karimi MS (2017) Foreign direct investment and economic growth: joams.5.6.445-451
evidence from Iran and GCC. Iran Econ Rev 21(3):601–620 Myskova R, Hajek P (2017) Comprehensive assessment of firm financial perfor-
Hair Jr JF, Black WC, Babin BJ, Anderson RE, Tatham R (2006) Multivariant data mance using financial ratios and linguistic analysis of annual reports. J Int
analysis. Pearson International Edition, New Jersey Stud 10:96–108. https://doi.org/10.14254/2071-8330.2017/10-4/7
Hasan R, Mitra D, Sundaram A (2013) What explains the high capital intensity of Nangih E, Onuora JKJ (2020) Capital intensity and firm profitability inter-
Indian manufacturing. Indian Growth Dev Rev 6(2):212–241. https://doi.org/ connectedness in Nigeria. J Account Bus Soc Sci 3:24–35
10.1108/IGDR-04-2012-0019 Novotná M, Leitmanová IF, Alina J, Volek T (2020) Capital Intensity and Labour
Hashmi SD, Gulzar S, Ghafoor Z, Naz I (2020). Sensitivity of firm size measures to Productivity in Waste Companies. Sustainability 12:10300. https://doi.org/10.
practices of corporate finance: evidence from BRICS. Future Bus J 6(9), 2–19. 3390/su122410300
https://doi.org/10.1186/s43093-020-00015-y or https://doi.org/10.1177/ Nunes P, Serrasqueiro Z, Matos A (2017) Determinants of investment in fixed
2278682118823312 assets and in intangible assets for high-tech firms. J Int Stud 10:173–179.
Iotti M, Bonazzi G (2012) EBITDA/EBIT and cash flow based ICRs: a comparative https://doi.org/10.14254/2071-8330.2017/10-1/12
approach in the AGRO-food system in Italy. Financ Assets Invest 3:19–31. Oeta SM, Kiai R, Muchiri J (2019) Capital intensity and financial performance of
https://doi.org/10.5817/FAI2012-2-2 manufacturing companies listed at Nairobi Securities Exchange. Int J Sci Eng
Ivanovski Z, Narasanov Z, Ivanovska N (2015) Volatility and kurtosis at emerging Res 10(9):1674–1658
markets: comparative analysis of Macedonian Stock Exchange and six mar- Pandya B (2017) Impact of capital expenditure on firm’s financial performance: a
kets from Central and Eastern Europe. Econ Bus J 9(1):84–93 study of select infrastructure companies in India. NICE J Bus 12(1):75–83
Jamil MN (2022) Impact the choice of Exchange Rate Regime on country economic Pantea M, Gligor D, Anis C (2014) Economic determinants of Romanian firms’
growth: which anchor currency leading the 21st Century. J Environ Sci Econ financial performance. Procedia—Soc Behav Sci 124:272–281. https://doi.org/
1:18–27 10.1016/j.sbspro.2014.02.486

10 HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | https://doi.org/10.1057/s41599-023-01571-8 ARTICLE

Reschiwati R, Syahdina A, Handayani S (2020) Effect of liquidity, profitability, and Wahlen J, Baginski S, Bradshaw M (2015) Financial reporting, financial statement
size of companies on firm value. Utop Prax Latinoam 25(6):325–331. https:// analysis, and valuation: a strategic perspective. Cengage Publication, UK
doi.org/10.5281/zenodo.3987632 Xin Q, Xu L (2012) Corporate investment, government control, and financing
Rodrigues VS, Heber JDM, Santos L, Ferreira D, Vinicius AS (2017) Capital channels: evidence from China’s listed companies. J Corp Finance
structure management differences in Latin American and US firms after 2008 18:433–450
crisis. J Econ Finance Adm Sci 22:51–74. https://doi.org/10.1108/JEFAS-01- Yoo W, Bae S, Singh K, Peter Q, Lollard JW (2014) A study of effects of multi-
2017-0008 collinearity in the multivariable analysis. Int J Appl Sci Technol 4:9–19
Rozenbaum O (2019) EBITDA and managers’ investment and leverage choices. Yu X, Dosi G, Grazzi M, Lei J (2017) Inside the virtuous circle between pro-
Contemp Account Res 36:513–546 ductivity, profitability, investment and corporate growth: an anatomy of
Rustam, Pudjihardjo M, Muljaningsih S (2019) The effect of capital intensive Chinese industrialization. Res Policy J 46:1020–1038
investment on employment: a case study in East Borneo. Int J Bus Econ Law Yusuf HA, Shittu WO, Akanbi SB, Umar HMB, Abdulrahman IA (2020) The role
19(5):322–327 of foreign direct investment, financial development, democracy and political
Shaheen S, Malik QA (2012) The impact of capital intensity, size of firm and (in) stability on economic growth in West Africa International Trade. Politics
profitability on debt financing in textile industry of Pakistan. Interdiscip J Dev 4:27–46. https://doi.org/10.1108/ITPD-01-2020-0002
Contemp Res Bus 3:1061–1066 Zaigham GHK, Wang X, Ali HS (2019) Causal relation between stock market
Sevella S, Mayuri D (2018) A study on EBIT-EPS analysis. Int J Res Eng Appl performance and firm investment in China: mediating role of information
Manag 4:686–688. https://doi.org/10.18231/2454-9150.2018.0564 asymmetry. SAGE Open 4:1–13
Sherman HD, Young SD (2018) The Pitfalls of Non-GAAP Metrics. MIT Sloan
Manag Rev 59(2):57–63. http://mitsmr.com/2zVEDcT
Shima K (2010) Lumpy Capital adjustment and technical efficiency. Econ Bullion Competing interests
30:2817–2824 The authors declare no competing interests
Shojaie T, Tehranchian AM (2018) New Empirical Evidence on the Determinants
of Capital Intensity: An Adaptive Comparison of Iran and China. Int J Econ Ethical approval
Financial Issues 8(2):94–100 This article does not contain any studies with human participants performed by any of
Singh N, Ma J, Yang J (2016) Optimizing environmental expenditures for max- the authors.
imizing economic performance. Manag Decision 54:2544–2561
Singh NP, Bagga M (2019) The effect of capital structure on profitability: an
empirical panel data study. Jindal J Bus Res 8:65–77 Informed consent
Siriopoulos C, Athanasios T, Argyro S, Evangelos D (2021) Foreign direct This article does not contain any studies with human participants performed by any of
investment in GCC countries: the essential influence of governance and the the authors.
adoption of IFRS. J Risk Financ Manag 14:264. https://doi.org/10.3390/
jrfm14060264
Strouhal J, Stamfestova P, Kljucnikov A, Vincurova Z (2018) Different approaches
Additional information
Correspondence and requests for materials should be addressed to Mawih Kareem AL
to the EBIT construction and their impact on corporate financial perfor-
Ani.
mance based on the return on assets: some evidence from Czech Top100
companies. J Competitiveness 10:114–154. https://doi.org/10.7441/joc.2018.
Reprints and permission information is available at http://www.nature.com/reprints
01.09
Sudiyatno B, Puspitasari E, Kartika A (2012) The company’s policy, firm perfor-
Publisher’s note Springer Nature remains neutral with regard to jurisdictional claims in
mance, and firm value: an empirical research on Indonesia Stock Exchange.
published maps and institutional affiliations.
Am Int J Contemp Res 2:30–40
Sui Y (2017) The research on the applications and limitations of EBITDA. In:
Proceedings of the 2nd International Conference on Sustainable Energy and
Environment Protection, June 23–25, 2017, Changsha, China
Sukesti F, Ghozali I, Fuad F, ALMasyhari AK, Nurcahyono N (2021) Factors Open Access This article is licensed under a Creative Commons
Affecting the Stock Price: The Role of Firm Performance. J Asian Finance Attribution 4.0 International License, which permits use, sharing,
Econ Bus 8(2):0165–0173. https://doi.org/10.13106/jafeb.2021.vol8.no2.0165 adaptation, distribution and reproduction in any medium or format, as long as you give
Sumaira, Bibi R (2022) Banking sector development and economic growth in south appropriate credit to the original author(s) and the source, provide a link to the Creative
Asian countries: dynamic panel data analysis. J Environ Sci Econ 1:52–57 Commons license, and indicate if changes were made. The images or other third party
Taipi E, Ballkoci V (2017) Capital expenditure and firm performance evidence material in this article are included in the article’s Creative Commons license, unless
from Albanian construction sector. Eur Sci J 13:231–238. https://doi.org/10. indicated otherwise in a credit line to the material. If material is not included in the
19044/esj.2017.v13n28p231 article’s Creative Commons license and your intended use is not permitted by statutory
Venter ER, Emanuel D, Cahan SF (2014) The value relevance of mandatory non- regulation or exceeds the permitted use, you will need to obtain permission directly from
GAAP earnings. J Account Finance Bus Stud (ABACUS) 50:1–24. https://doi. the copyright holder. To view a copy of this license, visit http://creativecommons.org/
org/10.1111/abac.12020 licenses/by/4.0/.
Vinasithamby S (2015) Does firm size influence on firm’s profitability? Evidence
from listed firms of Sri Lankan Hotels and Travels sector. Res J Finance
Account 6:201–207 © The Author(s) 2023

HUMANITIES AND SOCIAL SCIENCES COMMUNICATIONS | (2023)10:76 | https://doi.org/10.1057/s41599-023-01571-8 11