| Scope and method of the study. The purpose of this study was to examine the models of capital structure theory in the Arab world, an environment that is different from that where the theory was born i.e. Western economies. A sample of 3--6 year panel data from the 12 Arab countries (Bahrain, Egypt, Jordan, Kuwait, Lebanon, Morocco, Oman, Palestine, Qatar, Saudi Arabia, Tunisia and the United Arab Emirates) that have stock markets is used. OLS, maximum likelihood, NL Maximum likelihood with heteroscedastic TOBIT models are used to regress 6 debt ratios on a host of theory and empirical determinants of capital structure.; Findings and conclusions. Due to institutional factors and country traditions, the regressions show mixed results on the directions, magnitudes and levels of significance for the determinants of debt in Arab countries. Arab countries are divided into tax countries and non-tax countries (Gulf States usually have no tax regime in place). The results support tax models of capital structure while they do not support the Agency and information asymmetry models. Moreover, Arab firms are found to follow a reverse Pecking Order Hypothesis. Country of origin is found to be a significant factor in determining the firm's capital structure. These results are consistent with the general findings in developing countries and partially with those in developed countries. The differences show that the theory of capital structure is not robust and needs to be either amended or expanded to include such patterns. |
