Assessing the Impact of COVID-19 on Capital Structure Dynamics: Evidence from GCC Economies

Amanj Mohamed Ahmed · Deni Pandu Nugraha · István Zsombor Hágen

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Corporate Finance and Governance Financial Analysis and Corporate Governance COVID-19 Pandemic Impacts

Abstract

This study seeks to investigate the potential effects of the recent pandemic (COVID-19) on capital structure dynamics. The Gulf Cooperation Council (GCC) is a fascinating topic for this study because of its distinct economic characteristics. The analysis draws upon a cross-country dataset covering 208 non-financial listed firms across five GCC countries, with data spanning the years 2010 to 2022. Capital structure is a dependent variable and is measured by total debt to equity, equity multiplier, and short-term debt ratios, while the COVID-19 pandemic, firm size growth, return on assets, tangibility, and growth were applied as independent variables. Using the generalized least squares (GLS) method, findings demonstrated that COVID-19 has a significant and positive influence on debt-to-equity and equity multiplier ratios but a negative one on short-term debt ratio. Thus, non-financial firms increased their debt financing and transferred debt from short-term to long-term funding. In addition, firm-specific factors, such as firm size, tangibility, and macroeconomic factors, such as GDP growth, positively and significantly impact capital financing. Conversely, profitability has a negative relationship with financial leverage. There is a lack of empirical research on how COVID-19 affects the financial structure of non-financial listed companies in GCC nations. Consequently, by filling the previously specified gaps, this study provides proof to support the idea of using debt financing to raise capital for economic recovery. GCC policymakers need to give priority to ensuring that firms have convenient access to inexpensive finance in light of the financial consequences caused by COVID-19. This will guarantee that companies have the resources necessary to bounce back and support economic growth.

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