Institutions and corporate capital structure in the MENA region

Abstract

This paper provides novel evidence on firmand country-level determinants of firm capital structure decisions in the MENA region. Using a sample of 444 listed firms from ten countries, over the 2003-2011 period, we find that MENA firms have target leverage ratios towards which they adjust over time. Yet, the speed of adjustment varies from one country to another. Our findings also suggest that some firm-level factors are associated with leverage consistent with the trade-off and pecking order theories of capital structure. We further find robust evidence that better institutional quality leads firms to use more debt.

Macroeconomic Factors and Corporate Capital Structure: Evidence from Listed Joint Stock Companies in Vietnam

“…Only a few studies mentioned the macroeconomic factors which affected the capital structure of corporations in Vietnam, typically the study by Dang Thi Quynh Anh and Quach Thi Hai Yen (2014), Vo Thi Thuy Anh et al (2014). It is worth mentioning that the identification of influencing elements in these studies was based on static capital structure; whereas several recent findings from Yang et al (2015), Temimi et al (2016), Belkhir et al (2016) showed that the dynamic capital structure would be more appropriate when considering the impact of macro factors on the capital structure of firms. Besides, these papers tilted in favour of macroeconomy and financial development, and no studies have addressed the affectation of institutional quality on capital structure decisions of Vietnamese firms.…”

“…In general, most of the researches explored that those aspects included not only the factors that reflected companies' characteristics such as size, profitability, growth opportunities, tangible assets, solvency, bankruptcy risk, etc. (Titman and Wessels, 1988;Rajan and Zingales, 1995;Wald, 1999;Michaelas et al, 1999;Booth et al, 2001;Deesomsak et al, 2004;Jong et al, 2007;Chakraborty, 2010;Handoo and Sharma, 2014) but also macroeconomic conditions (such as corporate income tax rates, inflation rates, economic growth and interest rates (Booth et al, 2001;Deesomsak et al, 2004;Bokpin, 2009;Bostos et al, 2009;Frank and Goyal, 2009;Mokhova and Zinecker, 2014;Memon et al, 2015;Temimi et al, 2016;Belkhir et al, 2016)), as well as financial development (Booth et al, 2001;Deesomsak et al, 2004;Bokpin, 2009;Kayo and Kimura, 2011;Temimi et al, 2016;Belkhir et al, 2016), and institutional quality (Mokhova and Zinecker, 2014;Belkhir et al, 2016) of the host countries, where the companies were operating.…”

“…Based on the theories and empirical studies of Ozkan (2001), Fama and French (2002), Kayhan and Titman (2007), Oztekin and Flannery (2012), Yang et al (2015), Temimi et al (2016), Belkhir et al (2016), model which reveals determinants affecting the capital structure of listed joint stock companies in Vietnam is suggested as follows: In the models, the dependent variable (D i,t ) reflects the capital structure of listed joint stock companies in Vietnam. It is measured by three indicators: total debts/total assets (LEV), long-term debt/total assets (LTD), short-term debt/total assets (STD).…”

“…They consist of the groups of elements that reflect the macroeconomic conditions (Y t ), the financial development (FD t ), and the institutional quality (INS t ) in model 1, 2, and 3 respectively. Firstly, the following items are used to illustrate macroeconomic conditions: corporate income tax (TAX), described by corporate income tax to profit before tax (Bostos et al, 2009;Handoo and Sharma, 2014;Belkhir et al, 2016); inflation rate (INF), calculated by the annual increase in consumer price index (Frank and Goyal, 2009;Bokpin, 2009;Memo et al, 2015;Yang et al, 2015;Temimi et al, 2016;Belkhir et al, 2016); economic growth (GDPG), defined by growth rate of real GDP (Camara, 2012;Belkhir et al, 2016); and interest rate (IR), measured by lending interest rate (Deesomsak et al, 2004;Memon et al, 2015). The second group which reflects the financial development of a country (FD) is based on studies of Belkhir et al (2016), Tema et al (2016).…”

“…In parallel with these theories, the explorations from the empirical studies proved that the decision to choose a capital structure was affected by factors that reflected the company's unique characteristics, such as size, profitability, opportunity for growth, tangible assets, liquidity, risks of bankruptcy... (Titman and Wessels, 1988;Rajan and Zingales, 1995;Wald, 1999;Michaelas et al, 1999;Booth et al, 2001;Deesomsak et al, 2004;Chakraborty, 2010;Handoo and Sharma, 2014). Moreover, many recent studies have examined the impact not only of the company's characteristics but also of factors which reflected the government policies, law, macroeconomic status or financial development of the host country where the firm operated (Bokpin, 2009;Bostos et al, 2009;Kayo and Kimura, 2011;Camara, 2012;Mokhova and Zinecker, 2014;Memon et al, 2015;Temimi et al, 2016;Belkhir et al, 2016).…”