Determinants of Capital Structure in GCC and G7 countries

  • Shahad Alitani

Student thesis: Doctoral Thesis


This study aims to empirically investigate and compare both firm- and country-specific
determinants of capital structure for firms in the tax-free economies of the GCC region
and the tax-based economies of the G7 member states. The sample of study includes
252 GCC firms (2,772 observations) and 396 G7 firms (7,128 observations) and covers
the period 2006-2016. The internal (firm-specific) factors analysed in this study include
firm size, profitability, tangibility, risk, and growth, and the external (country-specific)
factors include GDP growth, inflation, and size of the banking industry. The results of
the bivariate analysis indicate that in the G7 economies, average long-term debt ratio
(31.04%) is higher than short-term debt ratio (29%). For GCC countries, on the other
hand, average short-term debt ratio (24%) was greater than average long-term debt ratio
(13.7%). The results also reveal that firm size was greater in G7 countries than in GCC
nations, but profitability was higher for GCC companies than for G7 firms. The
multivariate analysis undertaken for this study used five regression models: OLS,
random effects, fixed effects, heteroscedasticity-corrected estimates, and GMM. The
results reveal that the main determinants of capital structure in G7 countries are size,
profitability, tangibility, growth, inflation, GDP growth, and size of banking industry.
With respect to the GCC countries, however, all country-specific factors were shown
to have an insignificant impact on debt ratios. Instead, capital structure decisions in
GCC firms were shown to correlate more strongly to certain internal, firm-specific
factors (i.e. size, tangibility, and growth). Moreover, the results reveal that retained
earnings as a proportion of total assets (RE/TA), which is a proxy for a firm’s life-cycle
stage, has a significant negative impact on debt ratio, indicating that firms with more
(RE/TA) had lower comparative levels of debt, which is consistent with life cycle
Date of AwardMar 2020
Original languageEnglish
Awarding Institution
  • University of Brighton
SupervisorSushil Mohan (Supervisor), Nikolaos Daskalakis (Supervisor) & Pascal Stiefenhofer (Supervisor)

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