Analysis capital structure of saudi companies Essay

Analysis capital structure of saudi companies - Essay Example The same considerations affect Islamic financial instruments, but with the difference that Islamic finance does not charge interest, thus changing the considerations for which debt is incurred. This paper examined ten Saudi Arabian firms as far as capital structure is concerned, and inquired into the factors that bear upon the decision to avail of certain modes of financing. The methodology made use of financial ratio analysis and qualitative data analysis in arriving at its findings. It concludes that Saudi firms are conservatively capitalized, and that the effects of conventional capital structure theories are not rigidly evident in the choice of capital mix of debt and equity. Acknowledgment Table of Contents Title page 1 Abstract 2 Acknowledgement 3 Table of contents 4 Chapter 1: Introduction 6 1.1 Chapter overview 6 1.2 Background of the research topic 6 1.3 Research objectives and questions 7 1.4 Significance of the research 7 1.5 Chapter summary 9 Chapter 2: Literature review 10 2.1 Chapter overview 10 2.2 Theories 10 2.3 Optimal capital structure literature 14 2.4 Factors influencing capital structure 15 2.5 Arab countries 17 2.6 Chapter summary 29 Chapter 3: Methodology 30 3.1 Chapter overview 30 3.2 Research study and methodology 30 3.3 Subjects of research 31 3.4 Type and source of data 32 3.5 Method of analysis 33 3.6 Variables used in the study 33 3.7 Chapter summary 34 Chapter 4: Results 35 4.1 Chapter overview 35 4.2 Summary of capital structure for Saudi Arabian companies 36 4.3 Summary of EPS, annual dividend, and payout rates of Saudi Arabian firms 37 4.4 Chapter summary 38 Chapter 5: Discussion and analysis 39 5.1 Chapter overview 39 5.2 Description of the capital structure choice of Saudi companies 39 5.3 External influences on capital structure decisions of Saudi companies 49 5.4 Chapter summary 61 Chapter 6: Conclusion 62 6.1 Summary of the dissertation 62 6.2 Conclusion 62 6.3 Directions for future research 65 References Appendices Chapte r 1 Introduction 1.1 Chapter Overview This chapter sets the context of the dissertation. It introduces the problem in the context in which it is significant, in order to provide direction and guidance for the further progress of the dissertation. The statement of the problem and the supporting research questions are provided, to serve as focus for the subsequent discussion. 1.2 Background of the Research Topic The capital structure choice is a long-standing issue of great importance for companies. The mix of funds, which affects the cost and availability of capital, has long been the focus of interest among companies due of its impact on investment decisions. Capital structure is defined as the relative value of debt and equity used to finance projects. The importance of capital structure results from the financing sources and the mix of securities used by firms to finance real investment. Capital structure is also important in Saudi Arabia, especially after the 2006 crisis. Firms n owadays try to finance their capital in better ways. Capital structure theory began with the celebrated paper by Modigliani and Miller (1958). These authors pointed out the trend that must be shown by such theories by showing under what conditions capital structure is irrelevant. Since then, many economists have followed the study with regard to all matters relating to capital structure, and have