To read the full version of this content please select one of the options below:

Corporate governance mechanisms and capital structure in UAE

Khaled Hussainey (Accounting and Finance Division, Stirling Management School, University of Stirling, Stirling, UK)
Khaled Aljifri (Department of Accounting, Faculty of Business and Economics, United Arab Emirates University, Al‐Ain, United Arab Emirates)

Journal of Applied Accounting Research

ISSN: 0967-5426

Article publication date: 7 September 2012

Abstract

Purpose

The purpose of this study is to examine the impact of corporate governance mechanisms on corporate financial decisions in one of the emerging economies, United Arab Emirates (UAE). In particular, the paper examines the degree to which internal corporate governance mechanisms and an external corporate governance mechanism affect UAE firms’ capital structure.

Design/methodology/approach

The paper uses a multiple regression analysis to examine the association between corporate governance and capital structure for a sample of 71 UAE firms listed either in the Dubai financial market or the Abu Dhabi securities market during 2006.

Findings

The paper finds that institutional investors have a negative impact on debt‐to‐equity ratio. This result does not support the “active monitoring hypotheses” where institutional investors are expected to exercise their voting rights effectively in order to prevent managers from reducing their “employment risk” at the expense of the interests of shareholders. It also finds that dividend policy is negatively associated with debt‐to‐equity ratio, while firms’ size is positively associated with debt‐to‐equity ratio.

Research limitations/implications

Empirical analysis suggests that corporate governance mechanisms have important implications for UAE firms’ financial policies. UAE managers should be aware of the benefits of the implementation of effective internal and external corporate governance mechanisms while embracing international corporate governance standards. An effective implementation of the codes of corporate governance should improve the efficiency and effectiveness of UAE firms and the UAE stock markets.

Originality/value

To the best of the authors’ knowledge, there is no study that has yet empirically examined the effect of the corporate governance mechanisms on capital structure in UAE or Middle Eastern countries. This study offers the first evidence of the impact of corporate governance mechanisms on capital structure in UAE.

Keywords

Citation

Hussainey, K. and Aljifri, K. (2012), "Corporate governance mechanisms and capital structure in UAE", Journal of Applied Accounting Research, Vol. 13 No. 2, pp. 145-160. https://doi.org/10.1108/09675421211254849

Publisher

:

Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited