Free Cash Flow Research Papers (original) (raw)

Following on from the pioneering work of Modigliani and Miller (1958) on capital structure, three conflicting theories of capital structure have been developed. They are namely: trade-off, pecking order, and agency cost theories. Capital structure theories differ in terms of their emphases on taxes (the trade-off theory), differences in information (the pecking order theory) and agency problems (the agency cost theory).
This study provides evidence of the capital structure theories pertaining to Egyptian companies. Egypt may be similar to the developing countries previously studied, but it may differ due to the crisis and other political issues happened in Egypt lately. Thus, it made us more curious to trace changes in the financing behaviour if any.
This study investigates the determinants of capital structure of Egyptian companies utilising data from the financial statements over the time period from 2003 to 2016, to examine the determinants of capital structure of Egyptian companies. Then, data from some developing countries like: Brazil, Chile, Hong Kong, India, Malaysia, Mexico, Pakistan Singapore, South Africa, South Korea, Taiwan, Thailand and Turkey as well as Middle East countries: Jordan, Kuwait, United Arab Emirates were also analysed to examine whether differences of the Egyptian business and economic environment induce Egyptian companies to display different financing behaviour from that of companies in the emerging market countries included in the study.
The results indicate that the trade-off theory and the pecking theory are the most common theories to describe the financial behaviour of the Egyptian companies' choice of capital structure whereas there was little evidence to support the agency cost theory. The companies in the emerging market countries examined in this study seem to follow the trade-off theory and agency cost theory and, to small extent, the pecking order theory of capital structure.
The descriptive statistics indicate that there are differences between Egypt and the other emerging market countries in terms of using short-term and long-term debt, profitability, assets structure, growth and companies' size. The excessive use of short-term debt compared to long-term debt by Egyptian companies.
This research contributes to the literature regarding determinants of capital structure in Egypt. The outcomes of this research are beneficial to various practitioners (e.g. investors, stock market participants, financial managers).