Abstract
The paper investigates how firms operating in the Levant economies (Jordan) and the Gulf Cooperation Council economies (Bahrain) determine their capital structure. Using unbalanced panel data and multiple regressions, the paper finds that the leverage ratio is positively affected by the size of the firm, but declines with an increase in the firm's profitability, the tangibility of assets and the firm's liquidity in both types of economy. The leverage ratio is also affected by the market conditions in which the firm operates. The degree and effectiveness of these determinants are dependent on the country's legal and financial traditions. Overall, the capital structure of a firm is heavily influenced by the economic environment and its institutions, corporate governance practices, tax systems, the borrower-lender relation, exposure to capital markets and level of investor protection in the country in which the firm operates.
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