Determinants of Capital Structure Risk Hedging Application on the EGX100

Abstract

Firm capital structure is one of the most widely researched topics in corporate finance. Capital structure refers to the way a firm finance its assets through combination between debt and equity. There are three main conflicting theories of capital structure that have been developed in this thesis from the other theories of capital structure. They are namely: Trade-off, pecking order, and agency costs theories. Capital structure theories differ in terms of their emphases on taxes “Tarde-off theory”, difference in information “Pecking order theory”, and agency problems “Agency cost theory”. This thesis aims at examining the impact of determinants capital structure on the observed DE ratio and Risk-hedged DE ratio. This thesis examines a number of determinates of capital structure namely; profitability, size of the firm, tangible assets, liquidity, growth, business risk, financial flexibility, relative tax effects, agency cost, uniqueness in comparison with risk hedging and observed capital structure. This thesis uses data from Thomson Reuters Eikon database for the non-financial firms included in EGX100. The data cover the years 2003 - 2018 annually. Granger Causality test and Hausman Test were used for the empirical estimation. The total number of firms included in the study is 76 firms. The basic forms of the data are income