Determinants of capital structure of the Egyptian listed corporations / Sara Mahmoud Saad ; Supervised Osama Elansary

Thesis (M.Sc.) - Cairo University - Faculty of Commerce - Department of Business Administration

The purpose of this study is to examine the relationship between the debt size in the Egyptian listed corporations and six explanatory variables, namely size, profitability, tangibility, growth opportunities, non-debt tax shields and liquidity. The study employs a multiple regression model to investigate determinants of capital structure. The sample includes 72 corporations out of 117 firms listed on EGX, excludes firms operating in the real estate and banking sectors, and covers the period from 2003 till 2010. The research findings indicate that most of the firms that are listed in the Egyptian exchange prefer equity to debt financing when deciding how to finance their operations, and prefer short-term leverage to long-term leverage. Also, it indicates that the capital structure decision in the Egyptian listed corporations does not follow a certain capital structure theory, given the mixed results detected in the three leverage models. In general, the three debt models (total, long-term and short term) show that the significant determinants of the Egyptian capital structure are size, profitability, growth opportunities and liquidity. Profitability and liquidity have negative relationship with debt conforming to the pecking order theory. Size has a significant positive relationship with debt following the trade-off theory assumptions. Tangibility has significant negative relationship with short-term, which conforms to the agency cost theory. Growth opportunities shows mixed results as it has a significant positive relationship with long-term leverage conforming to the pecking order theory and a significant negative relationship with short-term leverage conforming to the trade-off theory. Indeed, this matches the reality where usually firms depend on long-term debts to finance expansion plans rather than short-term debts.Finally, non-debt tax shield has an insignificant relationship with all of the leverage proxies, suggesting that managements in the listed corporations do not take into consideration the benefits of non-debt tax shield on the company{u2019}s value when taking capital structure decisions

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