Determinants of Capital Structure in Various Circumstances: Could They Be Similar?

Abstract

The financial economics literature has given the capital structure choice of firms a lot of attention. Indeed, this literature includes not only econometric analysis of the determinants of capital structure, but also surveys of Chief Financial Officers on this financial decision. This paper reports the leverage ratios of listed Saudi and Palestinian non-financial firms and examines whether the differences in the determinants of their ratios are due to firms-specific factors, or country-specific difference. Based on a total of 55 listed Saudi firms and 18 listed Palestinian firms during the period 2006-2012, and using the Seemingly Unrelated Regression, and Panel data Analysis, the results indicate that factors like asset structure and firm profitability impact the capital structure of both sets of firms. However, the differences in their impact are due to country-specific and not firm-specific factors. This result is not really surprising given that both sets of firms operated under different political and economic circumstances.