The Determinants of Capital Structure and Dividend Policy: Empirical Evidence from the Kingdom of Saudi Arabia Market

Abstract

This paper investigates the main determinants and interrelationship of dividend policy and capital structure in emerging markets, regard to the market of the Kingdom of Saudi Arabia (KSA). The practical analysis uses two models which are Ordinary Least Square (OLS) and Logistic Regression (LR). We examine 91 listed non-financial firms in the KSA stock market (Tadawal Stock Exchange) for the period between 2012 and 2016. With regard to the determinants of capital structure, the analysis found a positive association with size, but a negative association with liquidity, tangible assets and lagged dividends. Also, other variables like profitability; firm size; dividend pay-out ratio; rate of growth opportunities; and life cycle, are empirically found to be insignificant to determine the capital structure. With regard to dividend policy, logistic analysis found a significant association between profitability, growth opportunity and lagged dividends.