Modeling capital structure decisions in a transition market: empirical analysis of firms in Egypt |
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Authors: | Tarek I Eldomiaty Mohamed A Ismail |
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Institution: | (1) College of Business Administration, University of Dubai, PO Box 14143, Dubai, UAE;(2) Faculty of Economics and Political Sciences, Statistics Department, Cairo University, Giza, Egypt |
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Abstract: | It has been realized that none of the three basic theories of capital structure presents a complete answer to the actual determinants
of corporate financing decisions. This study attempts to model the practice of capital structure decisions according to the
basic premises of each theory of capital structure: trade-off theory, pecking-order theory and free cash flow theory. The
methodology addresses modeling long-term and short-term debt financing decisions based on ten different statistical criteria
using data from Egypt stock market. The empirical evidence indicates that four models of corporate financing are influenced
by the trade-off theory relatively. The contributions of this paper are as follows. First, this study offers a more refined
and comprehensive methodology for modeling firms’ capital structure decisions. Second, the results of this study compare to
those of previous studies of other developing countries and thus add an element of external validity.
Mohamed A. Ismail is currently working as a consultant for the Information and Decision Support Center (IDSC), the Egyptian
Cabinet-Egypt. He would like to acknowledge the financial support provided by the IDSC. |
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Keywords: | Capital structure Modeling Subset selection Egypt |
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