Testing Pecking Order Theory and Market Timing Theory in the Egyptian Stock Exchange.

Document Type : Original Article

Authors

1 Business Administration Department Faculty Of Commerce Alexandria University Alexandria Egypt

2 Business Administration Faculty Of Commerce Alexandria University Alexandria Egypt

Abstract

The present study aims at testing the pecking order theory and the market timing theory and how they explain the capital structure decisions of firms listed in the Egyptian stock exchange. The paper examines each theory, independently in separate models and examines both theories, collectively in one model. Both approaches are conducted using panel data analysis for a sample of 43 firms listed on the Egyptian stock exchange in different industrial sectors over the period 2009-2015. The results indicated that the modified pecking order theory is the best theory to explain the capital structure decisions in Egypt, while the market timing has short term effect on capital structure. The study also showed that the most important determinants of capital structure in Egypt are profitability, firm size, growth and financial deficit. The study also confirms the arguments of the capital structure theories are not mutually exclusive and they complete each other in explaining the capital structure decisions in Egypt .equity or hybrid securities. Also, they added that researchers still have inadequate understanding of corporate financing behavior.
 

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