Capital structure in Saudi Arabian listed and unlisted companies

Abstract

Although there have been many prior studies of the determinants of capital structure, most have investigated listed companies in countries with well-developed markets and institutions. The main objective of the present study is to extend prior research by investigating both listed and unlisted companies in Saudi Arabia where many cultural and institutional features may have an impact on financing decisions in a different manner to ‘developed’ countries. A further contribution is the application of a systematic statistical approach, using meta-analysis, to summarise the many prior empirical studies. The empirical part of the study investigates 60 listed and 403 unlisted firms over the period 2000-2004 using several regression-based archival techniques including panel data analysis. Robustness checks are carried out to investigate the potential impact of the different methods and alternative measurement proxies. The results show that, in general, companies in Saudi Arabia have substantially lower levels of debt than in many other countries. This finding is related to the very low tax regime and other environmental characteristics. Unlisted firms have more short-term debt but less long-term debt than listed firms, as found in other countries. Despite the profound institutional differences, several firm-specific factors (such as firm size, asset tangibility, profitability, and liquidity) are found to have similar impacts on capital structure decisions in Saudi Arabia as they have in prior research. However, the impact of some factors is different, most likely reflecting lower levels of agency costs in the Saudi Arabian institutional environment.