The Determinants of Capital Structure: Evidence from GCC and UK Real Estate Sectors

This paper investigates the determinants of capital structure in the context of the Gulf Cooperation Council (GCC) and United Kingdom (UK) real estate sectors. The results of a bivariate analysis indicate that leverage in the UK is much higher than in GCC countries. This may be attributable to UK companies facing a lower cost of debt, which would facilitate their raising of debt capital from the market. In addition, UK real estate firms tend to be larger and have higher levels of tangibility and retained earnings compared with GCC firms, while GCC firms tend to be more profitable and have more growth opportunities. The results of panel and Tobit regression analyses support both trade-off and pecking order theories; for instance, company size was found to have a significant positive impact on different types of debt measurements (market and book debt ratios), which is consistent with the trade-off theory, while profitability and retained earnings to total assets exhibited a significant negative impact for GCC and UK real estate firms, which is consistent with the pecking order theory. Importantly, these results hold true regardless of whether the regressions are estimated using an OLS, random effects, fixed effects panel estimation or a Tobit model.