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Capital structure and firm characteristics: an empirical analysis from Egypt

Listed author(s):
  • Mohammad M. Omran
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    Purpose - The aim of this paper is to investigate differences in capital structures across industries in Egypt paying particular attention to: corporate characteristics, such as liquidity, asset structure, growth, and size; fiscal characteristics, namely, the application of differential corporate tax rates; and stock market activity. Design/methodology/approach - Comparisons are made between the four main industrial sectors: food, heavy industries, contracting and services. For each industry four aspects of capital structure are assessed. Firms are also classified according to whether their shares are actively traded on the Egyptian stock market. Multiple regressions are run to test a range of hypotheses. ANOVA and multiple comparison procedures are also employed. Findings - Across Egyptian firms, higher business risks do not generally result in lower levels of long-term capital structure. The contracting sector is significantly different from food, heavy industries and services in its determinants of its short-term financing and interest ratios. The sector also has a higher level of debt, and so a hypothesised tax-induced higher debt level for the services sector, which has the highest corporate tax rate, is rejected. Asset-backing is particularly important in heavy industries, and in non-actively traded firms. Size and growth are positively related to short-term financing in heavy industries and services. Originality/value - The value lies in the comprehensiveness of the study, covering both short- and long-term capital structures across industries, both income measures and capital indebtedness, and distinctions according to whether the shares are actively traded or not.

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    Article provided by Emerald Group Publishing in its journal Review of Accounting and Finance.

    Volume (Year): 8 (2009)
    Issue (Month): 4 (October)
    Pages: 454-474

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    Handle: RePEc:eme:rafpps:v:8:y:2009:i:4:p:454-474
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    1. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    2. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
    3. Wald, John K, 1999. "How Firm Characteristics Affect Capital Structure: An International Comparison," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(2), pages 161-187, Summer.
    4. Kenneth Mcclure & Ronnie Clayton & Richard Hofler, 1999. "International capital structure differences among the G7 nations: a current empirical view," The European Journal of Finance, Taylor & Francis Journals, vol. 5(2), pages 141-164.
    5. Saumitra Bhaduri, 2002. "Determinants of capital structure choice: a study of the Indian corporate sector," Applied Financial Economics, Taylor & Francis Journals, vol. 12(9), pages 655-665.
    6. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
    7. Qaizar Hussain & Eugeniy Nivorozhkin, 1997. "The Capital Structure of Listed Companies in Poland," IMF Working Papers 97/175, International Monetary Fund.
    8. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
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