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Volume :10 Issue : 3 2003      Add To Cart                                                                    Download

Capital Structure and Performance of Non Taxpaying Entities

Auther : Turki B. Alshimmiri

There are numerous studies that investigate the determinants of capital structure in developed countries, but very few were conducted for developing countries and transition economies. Unlike all previous studies that consider tax effects as a vital determinant of capital structure, this study examines capital structure determinants for non tax-paying Kuwaiti business entities. In confirming the predictions of the static trade-off theory (or taxed based theory) of capital structure, there appear to be a relation between capital structure decision and firm financial performance of Kuwaiti non-taxpaying firms. The agency theory stands as a valid explanation for why non tax-paying entities use debt in their capital structure. This study reveals that the most important determinants of capital structure of firms in Kuwait, as a developing country, are institutional holdings, profitability, and firm size. While the results of the study are tentative because of the small sample, they suggest that the performance of the Kuwaiti firms is influenced, to some extent, by the corporate governance attributes.

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