Firm-level determinants of capital structure in the MENA region

Keywords: trade-off theory, pecking order theory, capital structure, MENA region

Abstract

This paper investigates the behavior of firm characteristics on capital structure in firms in the MENA region. The outcomes of this research are important to bridge the gap between the theory and the practical decisions related to capital structure. The research studies the impact of firm characteristics on levels of debt from three different perspectives; short-term debt, long-term debt, and total debt. The study is applied to 416 firms from nine countries of the MENA region (Bahrain, Qatar, Saudi Arabia, UAE, Oman, Kuwait, Egypt, Jordan, and Tunisia) over some time from 2007-2016. Various econometrics techniques are used to reinforce the generated results. The results show that a firm's profitability and liquidity levels have a significant inverse impact on leverage, whereas; firm's size has a direct impact. The empirical results also show that asset tangibility and market value impact leverage differently depending on the type of debt used. Overall, the results reinforce the importance of both the pecking order theory as well as the trade-off theory in explaining capital structure decisions in the MENA region, with the results being more significant concerning the pecking order theory.

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Published
2020-04-26
How to Cite
El-Diftar, D. (2020). Firm-level determinants of capital structure in the MENA region. Journal of Research in Emerging Markets, 2(3), 1-12. https://doi.org/10.30585/jrems.v2i3.494