Capital Structure Determinants of Palestinian Corporations

Abstract

The aim of this study was to investigate the capital structure determinants of Palestinian corporations. The study hypotheses have been developed in light of three capital structure theories; namely, trade-off theory, agency theory and pecking order theory, in addition to the empirical findings of past literature. Unbalanced panel data of 33 non-financial Palestinian corporations from 2005 to 2013 was used in model estimation. Models were estimated using pooled, fixed and random effects. Results demonstrated that firm size, growth opportunities and non-debt tax shield are positively related to leverage ratio, while profitability is negatively related to leverage. These results are mostly consistent with pecking order theory. These results indicate that information asymmetry problems are more severe in Palestine than in other countries. This conclusion urges firms and regulators to work to build trust with investors via providing the useful data for decision making. Providing information necessitates the development of the accounting profession, as well as adopting and enforcing clear accounting standards. This will open the door in the future for an active bond and stock markets that stimulate the primary market activities of firms rather than the speculation activities of investors.