Capital structure and debt maturity: Evidence from listed companies in Saudi arabia
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Published
Mar 1, 2005
Abstract
This study examines the determinants of capital structure in general and the determinants of corporate debt- maturity in particular for 56 listed companies in Saudi Arabia. To achieve this objective the study was set to test a number of hypotheses regarding the determinants of capital structure and debt maturity. These hypotheses were related to the effects of profitability, growth opportunities, asset maturity, size, liquidity and age. Total debt ratio was found to be positively and significantly related to the percentage growth in total assets and negatively and significantly related to liquidity and asset structure. Growth opportunities variable was found to be positively and significantly related to long - term debt and was negatively and significantly related to short term debt. The relationship between asset maturity and long term debt was found to be negative and significant. Therefore, there is no support of the hypothesis that debt maturity decreases as the proportion of growth potentials increase. Size was found to be positively and significantly related to long term debt and negatively and significantly related to short term debt implying that larger firms borrow on long term and small ones borrow on short term. Profitability, age liquidity appeared to have no statistical significance on the different types of debt. The implications of these results have been examined and future research directions have been suggested.
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Keywords
Maturity
References
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• Myers, S.C. (1977), " Determinants of Corporate Borrowing", Journal of Financial Economics, Vol. 5. PP.147-175.
• Flanner, M.,J., (1986), " Asymmetric Information and Risky Debt Maturity Choice", Journal of Finance, Vol.41. PP. 19-37.
• Diamond, D., W. (1991)," Debt Maturity and Liquidity Risk", Quarterly Journal of Economics, Vol. 106. PP. 709-737.
• Barnae, A., Haugen, R. and Senbet,L. (1980), "A Rationale for Debt Maturity Structure and Call Provisions in the Agency Theory Framework", Journal of Finance, Vol.35, PP. 1223-1234.
• Ross,G.C.,(l977),"The Determinants of Financial Structure: The Incentive Signaling Approach," Bell Journal of Economics, Spring, PP. 23-40
• Guedes, J. and Opler,T. (1996), " The Determinants of the Maturity of Corporate Debt Issues," Journal ofFinance, Vol. 51. PP. 1809-1833.
• Barclay, M. J., and Smith, C. W., (1995), "The Maturity Structure of Corporate Debt", Journal of Finance, Vol. 50, June PP. 609-631.
• Stohs, M. and Mauer. D., (1996) " The Determinants of Corporate Debt Maturity Structure", Journal ofBusiness, Vol. 69, NO.3. PP. 279-312.
• Scherr, F. and Hulburt, H., (2001), " The Debt Maturity Strucutre of Small Firms", Financial Management, Spring, pp. 85-111.
• Bolbol,A. and Omran, M (2004), Arab Stock Markets and Capital Investment. Arab Monetary Fund, UAE.
• AL- Sakaran ,S., (2001)"Leverage Determinants in the Absence of Corporate Tax System: The Case of Non-Financial Publicly Traded Corporations in Saudi Arabia", Managerial Finance, Vol.27, No. 10111, pp. 58-86.
• Abdullah,A. and Elsiddig,B (2002) " The Determinants of Capital Structure of Industrial Listed Companies in Saudi Arabia", Public Administration, Vol.42, No.2, pp.723-747.
• Modigliani, F and Miller, M.H., (1963) "The Cost of Capital, Corporation Finance and the Theory oflnvestment", American Economic Review, Vol. 48, pp. 261-97
• Gupta,M.C., (1969) " The effects of Size, Growth and Industry on the Financial Structure of Manufacturing Companies", Journal of Finance, Vol. 24, pp. 517-529.
• Titman, S. and Wessels, R. (1988)," The Determinants of Capital Structure Choice", Journal of Finance, Vol.43, pp. 1-19.
• Ozkan, A. (1996), "Corporate Bankruptcies, Liquidation Costs and the Role of Banks", The Manchester School, Vol. 64, pp. 187-221.
• Myers, S.C. and Majluf, N.S. (1984), " Corporate Financing and Investment Decisions When Firms have Information that Investors Dnot Have", Journal of Financial Economics, Vol. 13, PP.187-221.
• Whited, T. (1992), "Debt Liquidity Constraints and Corporate Investment: Evidence from Panel Data", Journal of Finance, Vol. 47, pp. 1425-1460.
• Ozkan, A. (2001), " Determinants of Capital Structure and Adjustment to Long Run Target: Evidence From UK Company Panel Data", Journal of Business Finance and Accounting, Vol. 28, No. 1 &8 (Jan./Marsh), PP.175-198.
• Prowse, S.D., (1991), " Institutional Investment Patters and Corporate Financial Behaviour in U.S. and Japan", Journal of Financial Economics, Vol. 27. PP.43-66.
• Hall, G., Hutchinson and Chittenden, F. (2000), " Industry Effects on the Determinants of Unquoted SMEs' Capital Structure", International Journal of the Economics of Business, Vol. 7, No.3. PP. 297-312.
• Abdulla, J (1994), "An Empirical Investigation of Pecking Order Hypothesis: The Case of Kuwait," Arab Journal of Administrative Sciences, Vol. I. No.2. PP.407 423
• Zugbaibi and Kabbani (2003), Gulf lnvestment Guide, Jeddah, Saudi Arabia
• Omet, G.M. and Nobanee ,H.J. (2001), "The Capital Structure of Listed Industrial Companies in Jordan", Arab Journal of Administrative Sciences, Vol. 8, No.2, PP. 273-289
• Claessens,S., Djankov,S. and Lang, L. (1998), " East Asian Corporates: Growth, Financing and Risks over the Last Decade", World Bank Policy Research Paper, Washington (DC), 1-23.
• Chittenden, F , Hall, G. and Hutchinson P. (1996), " Small Firm Growth, Access to Capital Markets and Financial Structure: a Review of Issues and Empirical Investigation", Small Business Economics, Vol. 8, pp. 58-67.
• Nivorozhkin, E. ( 2002) "Capital Structure in Emerging Stock Markets: The Case of Hungry" Developing Economies, XL-2, June, pp. 166-87
• Myers, S.C. (1977), " Determinants of Corporate Borrowing", Journal of Financial Economics, Vol. 5. PP.147-175.
• Flanner, M.,J., (1986), " Asymmetric Information and Risky Debt Maturity Choice", Journal of Finance, Vol.41. PP. 19-37.
• Diamond, D., W. (1991)," Debt Maturity and Liquidity Risk", Quarterly Journal of Economics, Vol. 106. PP. 709-737.
• Barnae, A., Haugen, R. and Senbet,L. (1980), "A Rationale for Debt Maturity Structure and Call Provisions in the Agency Theory Framework", Journal of Finance, Vol.35, PP. 1223-1234.
• Ross,G.C.,(l977),"The Determinants of Financial Structure: The Incentive Signaling Approach," Bell Journal of Economics, Spring, PP. 23-40
• Guedes, J. and Opler,T. (1996), " The Determinants of the Maturity of Corporate Debt Issues," Journal ofFinance, Vol. 51. PP. 1809-1833.
• Barclay, M. J., and Smith, C. W., (1995), "The Maturity Structure of Corporate Debt", Journal of Finance, Vol. 50, June PP. 609-631.
• Stohs, M. and Mauer. D., (1996) " The Determinants of Corporate Debt Maturity Structure", Journal ofBusiness, Vol. 69, NO.3. PP. 279-312.
• Scherr, F. and Hulburt, H., (2001), " The Debt Maturity Strucutre of Small Firms", Financial Management, Spring, pp. 85-111.
• Bolbol,A. and Omran, M (2004), Arab Stock Markets and Capital Investment. Arab Monetary Fund, UAE.
• AL- Sakaran ,S., (2001)"Leverage Determinants in the Absence of Corporate Tax System: The Case of Non-Financial Publicly Traded Corporations in Saudi Arabia", Managerial Finance, Vol.27, No. 10111, pp. 58-86.
• Abdullah,A. and Elsiddig,B (2002) " The Determinants of Capital Structure of Industrial Listed Companies in Saudi Arabia", Public Administration, Vol.42, No.2, pp.723-747.
• Modigliani, F and Miller, M.H., (1963) "The Cost of Capital, Corporation Finance and the Theory oflnvestment", American Economic Review, Vol. 48, pp. 261-97
• Gupta,M.C., (1969) " The effects of Size, Growth and Industry on the Financial Structure of Manufacturing Companies", Journal of Finance, Vol. 24, pp. 517-529.
• Titman, S. and Wessels, R. (1988)," The Determinants of Capital Structure Choice", Journal of Finance, Vol.43, pp. 1-19.
• Ozkan, A. (1996), "Corporate Bankruptcies, Liquidation Costs and the Role of Banks", The Manchester School, Vol. 64, pp. 187-221.
• Myers, S.C. and Majluf, N.S. (1984), " Corporate Financing and Investment Decisions When Firms have Information that Investors Dnot Have", Journal of Financial Economics, Vol. 13, PP.187-221.
• Whited, T. (1992), "Debt Liquidity Constraints and Corporate Investment: Evidence from Panel Data", Journal of Finance, Vol. 47, pp. 1425-1460.
• Ozkan, A. (2001), " Determinants of Capital Structure and Adjustment to Long Run Target: Evidence From UK Company Panel Data", Journal of Business Finance and Accounting, Vol. 28, No. 1 &8 (Jan./Marsh), PP.175-198.
• Prowse, S.D., (1991), " Institutional Investment Patters and Corporate Financial Behaviour in U.S. and Japan", Journal of Financial Economics, Vol. 27. PP.43-66.
• Hall, G., Hutchinson and Chittenden, F. (2000), " Industry Effects on the Determinants of Unquoted SMEs' Capital Structure", International Journal of the Economics of Business, Vol. 7, No.3. PP. 297-312.
• Abdulla, J (1994), "An Empirical Investigation of Pecking Order Hypothesis: The Case of Kuwait," Arab Journal of Administrative Sciences, Vol. I. No.2. PP.407 423
• Zugbaibi and Kabbani (2003), Gulf lnvestment Guide, Jeddah, Saudi Arabia
• Omet, G.M. and Nobanee ,H.J. (2001), "The Capital Structure of Listed Industrial Companies in Jordan", Arab Journal of Administrative Sciences, Vol. 8, No.2, PP. 273-289
• Claessens,S., Djankov,S. and Lang, L. (1998), " East Asian Corporates: Growth, Financing and Risks over the Last Decade", World Bank Policy Research Paper, Washington (DC), 1-23.
• Chittenden, F , Hall, G. and Hutchinson P. (1996), " Small Firm Growth, Access to Capital Markets and Financial Structure: a Review of Issues and Empirical Investigation", Small Business Economics, Vol. 8, pp. 58-67.
• Nivorozhkin, E. ( 2002) "Capital Structure in Emerging Stock Markets: The Case of Hungry" Developing Economies, XL-2, June, pp. 166-87
How to Cite
Abdullah, Abdul Kader M. A. 2005. “Capital Structure and Debt Maturity: Evidence from Listed Companies in Saudi Arabia”. Studies in Business and Economics 11 (1). https://doi.org/10.29117/sbe.2005.0004.
Section
Articles