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)

    Cite this