Determinants of Capital Structure: Evidence from Tunisian Listed Firms

Abstract

This paper investigates the determinants of capital structure based on a panel of 32 non-financial companies listed on the Tunisian Stock Exchange over the period 2005-2010. The study is made with reference to different theories of capital structure; namely the trade-off, pecking order and market timing theories with focusing on the impact of market imperfections on debt ratio. Both static and dynamic panel data regressions are performed. The empirical results reveal that firm-specific factors such as firm size and profitability influence capital structure choice in Tunisia, while no meaningful effect is detected for growth opportunities. Our results also show that Tunisian listed companies adjust towards a target debt ratio. The adjustment appears to be slow on the Tunisian market because of high adjustment costs.