Capital structure in the MENA region: Empirical evidence from Morocco and Turkey

Abstract

This study examines the association of leverage with company financial attributes, such as firm size, asset tangibility, profitability and growth. It also focuses on the market timing theory of capital structure, and considers whether financial structure decisions are affected by markets conditions, such as for example issuing stock when valuations are high and debt when interest rates are low. Further, this study investigates the association between company performance, corporate governance and leverage. The findings show that, for both Morocco and Turkey, size is an important factor for financial decision-making and is positively associated with leverage. Moroccan and Turkish firms display a negative relation between asset tangibility, profitability and leverage. In contrast to Moroccan firms, Turkish firms exhibit a positive association between growth and leverage. This study also shows that firms would use equity financing when stock valuations are high and investor perceptions are positive. Firms would be inclined to use debt when interest rates are lower. The findings also indicate that, for both countries, company performance is positively related to effective corporate governance, as expressed by the presence of independent directors on the board or of institutional or foreign investors monitoring managers' actions, and negatively to leverage. © Authors, 2013.