The impact of corporate governance and ownership structure on the capital structure decisions of Saudi listed firms

This study aims to examine the impact of corporate governance mechanisms and ownership structure on Saudi-listed firms' capital structure decisions. The study uses 420 firm-year observations from 70 Saudi non-financial listed firms from 2016 to 2021. Using agency theory, the study tests the impact of corporate governance mechanisms (board size, board independence, and CEO duality) and ownership structure (ownership concentration and managerial ownership) on the capital structure decisions of Saudi listed firms. Generalized Least Squares (GLS) and Generalized Method of Moments (GMM) regressions are used in this study to determine the relationship dynamics between corporate governance mechanisms and ownership structure on Saudi-listed firms' capital structure decisions. The results show that board size in term of short-term debt (STD) ratio, board independence, CEO duality, firm size in term of short-term debt (STD) ratio, asset tangibility in terms of total debt (TD) and short-term debt (STD) ratios, firm liquidity, firm profitability, and firm age have a negative impact on corporate capital structure decisions, while board size in term of long-term debt (LTD) ratio, ownership concentration, managerial ownership, firm size in term of total debt (TD) and long-term debt (LTD) ratios, sales growth and asset tangibility in terms of long-term debt (LTD) ratio have a positive impact on capital structure decisions. Robustness tests also support the findings. The study provides guidance for policymakers and regulators in the development of laws, corporate governance codes, and/or institutional support designed to increase the efficiency of corporate governance mechanisms, as well as guidance for firm managers and investors interested in determining optimal firm capital structures. This paper contributes to both the corporate governance and capital structure literatures by presenting additional evidence on the impact of board structure and ownership structure on corporate capital structure decisions.