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Cogency of Capital Structure Theories to an Islamic Country: Empirical Evidence from the Kuwaiti Banks

Author

Listed:
  • Kamal Naser

    (Financial and Economic Advisor, Kuwait Fund, Kuwait)

  • Abdullah Al-Mutairi

    (Department of Economics and Finance, Gulf University for Science and Technology, Kuwait)

  • Ahmad Al Kandari

    (Department of Banking and Insurance, Public Authority for Applied Education and Training, Kuwait,)

  • Rana Nuseibeh

    (Free Financial Analyst, UK.)

Abstract

This study is set out to examine the cogency of capital structure theories in a unique Islamic financial environment where tax shield is irrelevant, paying or receiving interest is undesirable and government exercises control over major economic activities. To achieve this objective, the annual reports of all Kuwaiti banks listed on the Kuwait Stock Exchange for the period between 2010 and 2014 were used to extract internal bank variables. In addition, external macroeconomic data were extracted from World Bank statistics. The results of the pooled regression analysis disclosed that the capital structure of the Kuwaiti banks are influenced by their size measured by total assets, cash dividends paid and the market value/book value of the bank's share. While the result was inconsistent with agency theory, it provides support to the pick-order, trade off and market theories.

Suggested Citation

  • Kamal Naser & Abdullah Al-Mutairi & Ahmad Al Kandari & Rana Nuseibeh, 2015. "Cogency of Capital Structure Theories to an Islamic Country: Empirical Evidence from the Kuwaiti Banks," International Journal of Economics and Financial Issues, Econjournals, vol. 5(4), pages 979-988.
    • Handle: RePEc:eco:journ1:2015-04-17
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Capital Structure; Firm Size; Pecking Order Theory; Static Trade-Off Theory; Banking Sector; Kuwait Stock Exchange; Kuwait;
    All these keywords.

    JEL classification:

    • C42 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Survey Methods
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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