Seminar in Finance and Banking

The Determinants of Capital

Structure:
Evidence from the GCC Countries

Group 3
Danya Khalil (U18103019) Meera Harib (U1615687)
Dunya Raed (U17102931) Nouf Alketibe (U1810161)
 TABLE OF CONTENTS

01 04
ABOUT US CONTENT PLAN
Topic of the section Topic of the section

02 05
ANALYSIS BUDGET
Topic of the section Topic of the section
 Abstract

1. Capital structure in GCC countries.

2. Do the GCC countries impose taxes?

 Introduction

o The theories by Modiglini and o The importance of firm-specific

Miller: factors:
● Static trade-off ● Level of development for financial
● Pecking order market.
● Macroeconomic factors
● Specific factors in corporate finance.
 Hypothesis formulation

Static trade- Pecking order Agency cost

off models

1 22 3
 Empirical Model

• Understanding the dynamic of capital structure requires more than a

cross-sectional examination of leverage ratios.

• It's crucial to take into consideration how organizations react to

changes in the financial markets and how soon they return to their
goal capital structure.
 Measurement of the Variables
o Factors:

Size Liquidity Profitability

Tangibility Growth
opportinities
 Measurement of the Variables -
continued

These factors are examined for two reasons:

o These elements have repeatedly been found to be connected with
leverage in past research.
o The availability of data significantly restricts the inclusion of
additional factors.
Dependent and Independent Variables
Measures of Leverage Ratio

Definitions of leverage

Liabilities Total debt Total

to total to net debt to
assets assets capital
 Independent Variables
Profitabilit
Size Liquidity
Has positive Has negative y relationship but
Has negative
relationship relationship positive relationship is
expected
Financial Market Growth Tangibility
Development Variables opportunities
• positive relationship
Has negative and positive Has negative with long term debt
coefficient estimate relationship • negative relationship
with short term debt
 Data and Summary
The following is a data collected by
the researcher from the Gulf
Investment guide:
• It is issued by Zughaibi and
kabbani financial consultant in
Jeddah.

• The data consists of 142 firms

operating in three GCC stock
markets from 1998 to 2005.

• In 2005. listed companies have

increased excluding some banks
Data and Summary
- continued

Table (2) : Presents the correlation

matrix among the variables.
Where the book and market
leverage ratios are highly
correlated with each other in all
three countries
 Empirical results
• Large companies theory

• Performance of leverage ratios is explained by the determinants of capital structure

• There is a negative relationship In all of the three GCC countries between:

Firm’s
profitability

Book and
market
leverage
 Conclusion
Leverage ratios in GCC countries
Oman, Kuwait and Saudi Arabia

Capital structure
determined by characteristics and external environment
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