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Assessing the Impact of COVID-19 on Capital Structure Dynamics: Evidence from GCC Economies

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  • Amanj Mohamed Ahmed

    (Doctoral School of Economic & Regional Sciences, Hungarian University of Agriculture and Life Sciences, 2100 Gödöllő, Hungary
    Darbandikhan Technical Institute, Sulaimani Polytechnic University, Sulaimaniyah 70-236, Iraq)

  • Deni Pandu Nugraha

    (Doctoral School of Economic & Regional Sciences, Hungarian University of Agriculture and Life Sciences, 2100 Gödöllő, Hungary
    Management Department, Faculty of Economic and Business, Universitas Islam Negeri Syarif Hidayatullah Jakarta, Banten 15412, Indonesia)

  • István Hágen

    (Institute of Rural Development and Sustainable Economy, Hungarian University of Agriculture and Life Sciences, 2100 Gödöllő, Hungary)

Abstract

This study seeks to investigate the potential effects of the recent pandemic (COVID-19) on capital structure dynamics. The Gulf Cooperation Council (GCC) is a fascinating topic for this study because of its distinct economic characteristics. The analysis draws upon a cross-country dataset covering 208 non-financial listed firms across five GCC countries, with data spanning the years 2010 to 2022. Capital structure is a dependent variable and is measured by total debt to equity, equity multiplier, and short-term debt ratios, while the COVID-19 pandemic, firm size growth, return on assets, tangibility, and growth were applied as independent variables. Using the generalized least squares (GLS) method, findings demonstrated that COVID-19 has a significant and positive influence on debt-to-equity and equity multiplier ratios but a negative one on short-term debt ratio. Thus, non-financial firms increased their debt financing and transferred debt from short-term to long-term funding. In addition, firm-specific factors, such as firm size, tangibility, and macroeconomic factors, such as GDP growth, positively and significantly impact capital financing. Conversely, profitability has a negative relationship with financial leverage. There is a lack of empirical research on how COVID-19 affects the financial structure of non-financial listed companies in GCC nations. Consequently, by filling the previously specified gaps, this study provides proof to support the idea of using debt financing to raise capital for economic recovery. GCC policymakers need to give priority to ensuring that firms have convenient access to inexpensive finance in light of the financial consequences caused by COVID-19. This will guarantee that companies have the resources necessary to bounce back and support economic growth.

Suggested Citation

  • Amanj Mohamed Ahmed & Deni Pandu Nugraha & István Hágen, 2024. "Assessing the Impact of COVID-19 on Capital Structure Dynamics: Evidence from GCC Economies," Economies, MDPI, vol. 12(5), pages 1-18, April.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:5:p:103-:d:1384098
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    References listed on IDEAS

    as
    1. Muhammad Ahmad & Rabia Bashir & Hamid Waqas, 2022. "Working capital management and firm performance: are their effects same in covid 19 compared to financial crisis 2008?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 10(1), pages 2101224-210, December.
    2. Stephen A. Ross, 1977. "The Determination of Financial Structure: The Incentive-Signalling Approach," Bell Journal of Economics, The RAND Corporation, vol. 8(1), pages 23-40, Spring.
    3. Philippe Adair & Mohamed Adaskou & David McMillan, 2015. "Trade-off-theory vs. pecking order theory and the determinants of corporate leverage: Evidence from a panel data analysis upon French SMEs (2002–2010)," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1006477-100, December.
    4. Sarthak Kumar Jena & Chandra Sekhar Mishra & Prabina Rajib, 2020. "Do Indian Companies Manage Earnings Before Share Repurchase?," Global Business Review, International Management Institute, vol. 21(6), pages 1427-1447, December.
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