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Determinants of Capital Structure of Listed Saudi Arabian Companies
Finance & Accounting
Pages 50 (12550 words)
Determinants of Capital Structure of Listed Saudi Arabian Companies Abstract The capital structure is the relative proportion of borrowed capital in comparison to equity capital. The importance in the financing is of importance because it has direct impact on capital
The main purpose of this study is to identify and describe the principal determinants of capital structure for Saudi Arabian firms, when the firms are classified as to their industry. Likewise, there are distinguishing features of Islamic finance that may well set it apart from conventional finance, and may possibly influence the decision of finance managers to adopt a particular level of debt capital over others. Specifically, Islamic finance does not permit the charging of interest or riba as creditors’ compensation for the use of borrowed funds. In the absence of interest cost, which is a fixed charge over a period of time, the financial leverage effect may not be as important a consideration in Sharia-compliant firms as it is in firms availing of conventional finance. Other than the effects of financial leverage, tax effects caused by borrowed funds may also be different without the recognition of interest as a tax-exempt cost, thereby modifying the basis of relied upon by management in making decisions about the level of debt it should avail of. ...
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