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

Abstract

This paper investigates the main factors determining the dividend payout policy and the capital structure decision in the Kingdom of Saudi Arabia (KSA). The sample includes 91 non-financial firms listed on the KSA stock market (Tadawal Stock Exchange) for the period between 2012 and 2016. Two models are used mainly the Ordinary Least Square (OLS) for the capital structure decision and Logistic Regression (LR) for the dividend policy decision. OLS results show that the capital structure is positively affected by the firm size, but negatively affected by liquidity, tangible assets, and lagged dividends. However, other variables such as profitability, the current dividend payout ratio, growth opportunities, and life cycle are found to have no impact on the capital structure decision. Furthermore, LR results show that the significant determinants of dividend payout decision are profitability, growth opportunity, and lagged dividends.  These results show that the capital structure and the dividend payout decisions are determined differently.