Abstract
This study aims to investigate the determinants of capital structure (CS), how they differ among levels (upstream, midstream, and downstream), and to identify Which CS theory is more relevant to the oil and gas companies in the GCC. It uses secondary data of 22 listed oil and gas companies in the GCC over ten years (2010 and 2019). The study will add to the literature as there is few studies about CS in the petroleum industry and it is the only study about the GCC oil and gas sector. Using pooled ordinary least square (OLS) random effect model, the main findings of this study are; the CS has a positive significant relationship with the size and tangibility, negative with profitability, and insignificant with growth in sales, market to book value, and price to earnings ratio. the research concluded that the GCC oil companies are aligned with both trade-off theory and pecking order theory. The results show that only the determinants of downstream companies are significant, while middle stream and upstream have no significant impact on CS. One of the limitations is unavailability of data of some governmental oil companies and further research is needed to include non-financial determinants and investigate relationships between CS and the value of companies.Keywords: Capital Structure Determinants; GCC Oil and Gas CS; CS Theory; Debt Asset Ratio; Debt Equity Ratio.JEL Classifications: G32; Q40, N75; L95DOI: https://doi.org/10.32479/ijeep.10570
Highlights
IntroductionU.S Energy Information Administration in 2017 (EIA) stated that the demand for the world’s energy will increase up to 56% by year 2040, and its future demand as well as supply will increase and dominate for long time
The driving force behind activities of world economy is the oil and gas industry
The Gulf Council Countries (GCC) oil and gas companies have an average debt to asset ratio of 30% but the average debt to equity is more than 100% (1.03)
Summary
U.S Energy Information Administration in 2017 (EIA) stated that the demand for the world’s energy will increase up to 56% by year 2040, and its future demand as well as supply will increase and dominate for long time. By its nature, this industry is subject to a variety of challenges such as political, technological, environmental risks, and the need for large investments. S. Energy Information Administration (2018) stated that the Arabian Gulf encompasses 55% to 68% of the world’s oil reserves and more than 40% of the gas reserves. Energy Information Administration (2018) stated that the Arabian Gulf encompasses 55% to 68% of the world’s oil reserves and more than 40% of the gas reserves. Shahad et al (2020) expected very high future growth of energy demand and consumption in Saud Arabia and the GCC at large
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