Capital structure in a tax-free economy: evidence from UAE

Abstract

Purpose

This paper aims to investigate the determinants of capital structure for non-financial listed firms in the United Arab Emirates (UAE) for the period 2004-2010. The contradiction between the different capital structure theories, limited literature on UAE and its distinctive characteristic of tax-free environment were the motivation for this paper.

Design/methodology/approach

The authors used two panel data techniques to estimate the regression models, and a series of robustness checks.

Findings

The authors find that growth opportunities, size, profitability and liquidity are the main determinants of leverage. The results support the argument of the inadequacy of one capital structure theory, although the results are more inclined toward the pecking-order level.

Practical implications

The results provide a comprehensive overview of the capital structure in the UAE; this information will be of use to managers, shareholders and lenders.

Originality/value

The findings of this paper contribute to the debate of the dominance of capital structure theories. The results also add to the strand of literature on the capital structure of firms in the Middle East, as the authors provide a comprehensive investigation of the determinants of capital structure in UAE non-financial firms.

Citation

Abdulla, Y. (2017), "Capital structure in a tax-free economy: evidence from UAE", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 10 No. 1, pp. 102-116. https://doi.org/10.1108/IMEFM-11-2015-0144