Financial Structure Choice in the United Arab Emirates Emerging Market
Journal of International Business Research, Vol. 6, No. 1, 2006, ISSN 1554-5466
Posted: 30 Mar 2006 Last revised: 23 Sep 2012
Date Written: September 22, 2012
This study explores the applicability of modern financial structure theories in the United Arab Emirates - an emerging financial market. Questionnaires were sent to the finance managers of a stratified random sample of U.A.E. food companies. A single sector study was chosen to aid comparability of responses. The responses are compared to each other and then to the previous empirical studies in the U.S.A. and Europe. The survey results show that respondents are more likely to be driven by behavioral/managerial factors in their choice of financial structure, rather than to target an optimal debt to equity ratio. A cross tabulation analysis highlights the importance of company and management demographic characteristics on financial structure choice, such as ownership status, management nationality, educational qualifications, company size and debt level. Further results indicate that respondents may be influenced in their financial structure choices by a number of different factors including: management goals and values, business risk, management attitude towards risk, external environment factors, use of equity finance as a last financing resort and to trade-off costs and benefits of using debt.
Keywords: Modern financial structure theories; United Arab Emirates; behavioral/managerial factors
JEL Classification: G32, M40, M41
Suggested Citation: Suggested Citation