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.
Highlights
The capital structure of any firm is crucial in today's business world
This study explored the impact of firm-specific factors on different levels of leverage in the MENA region
It can be concluded that theories of capital structure adequately explain the behavior of firm characteristics towards their impact on debt levels in the MENA region
Summary
The capital structure shows how firms generate their funds by trying to find the optimal mix of debt and equity. Since very high levels of debt can lead to the possibility of bankruptcy, managers need to thoroughly take capital structure decisions. Decision-makers need to highly understand the nature of their firm as well as the economy to accurately take capital structure decisions. One size does not fit all when it comes to capital structure policy; the appropriate capital structure for each firm depends on its unique characteristics. This is why researching what determines capital structure decisions in corporations has been a hot research topic for many academicians
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