The Determinants of Capital Structure: Evidence from Saudi Arabian Listed Companies

Résumé

Abstract

This study examines the determinants of capital structure of non-financial firms listed on the Saudi Stock Exchange (Tadawul) over the period 2012–2017. Using a balanced panel dataset and applying pooled OLS, fixed-effects, and random-effects regression models, the analysis investigates how firm-specific characteristics size, growth opportunities, profitability, asset tangibility, and liquidity affect corporate leverage decisions. Capital structure is measured using both long-term debts to total assets and total debt to total assets. The empirical findings reveal a strong and robust positive relationship between firm size and leverage. Growth opportunities are also positively associated with long-term debt, indicating a reliance on external financing for expansion. In contrast, profitability shows weak and inconclusive effects on leverage. Notably, asset tangibility exhibits a significant negative relationship with leverage, challenging traditional collateral-based explanations and highlighting a tangibility paradox in the Saudi context. Liquidity indicators display mixed effects, suggesting that leverage and liquidity may coexist rather than substitute each other in emerging markets. Overall, the results indicate that capital structure decisions in Saudi Arabia cannot be explained by a single theoretical framework, but rather by a combination of trade-off, pecking order, and institutional factors. This study contributes to the literature by providing evidence from a major GCC economy and underscores the importance of context-specific financial behavior in emerging markets.

Key Word

Keywords: Determinants of Capital Structure, size, growth, profitability, tangibility, liquidity.