This study provides empirical evidence on the determinants of capital structure in energy firms within the Middle East and North Africa (MENA) region, focusing on short-term, long-term, and total debt ratios. Using Pooled Effect Panel Data Regression Models Alongside Weighted Least Squares (WLS) regression to address heteroskedasticity, the research examines the impact of firm-specific, industry-specific, and macroeconomic factors on corporate leverage decisions.
The findings reveal that firm-specific factors, including profitability, tangibility, growth opportunities, and liquidity, play a significant role in shaping capital structure, while industry-specific and macroeconomic factors have limited influence. The study strongly supports the pecking order theory, as profitability negatively correlates with all debt measures, indicating firms in the MENA energy sector prefer internal financing over external borrowing due to high information asymmetry and financial instability. Additionally, the findings align with the trade-off theory, as tangibility positively impacts debt levels, suggesting firms leverage tangible assets as collateral for financing.
Short-term debt decisions are influenced by growth opportunities, firm size, and industry leverage benchmarks, highlighting the role of operational financing needs and sectoral norms. Long-term debt decisions, however, are primarily driven by non-debt tax shields and tangibility, reinforcing the notion that firms with substantial tax shields substitute tax benefits for debt-related advantages. Total debt ratios are shaped by a mix of profitability, growth opportunities, and liquidity, further emphasizing the dominance of internal financial management over external market conditions.
Contrary to expectations, macroeconomic variables such as GDP growth, stock market conditions, and oil prices do not significantly impact capital structure decisions. This contrasts with findings from developed economies, where capital markets and economic cycles strongly affect debt financing. A potential explanation is the heavy reliance of MENA energy firms on government-backed financing, stable oil revenues, and long-term investment strategies, reducing their sensitivity to short-term economic fluctuations.
By highlighting the firm-specific nature of capital structure decisions in energy-intensive economies, this study contributes to the capital structure literature in emerging markets. The results offer practical insights for financial managers, policymakers, and investors, providing a deeper understanding of how MENA energy firms structure their financing under different economic and operational conditions.