Family businesses in the GCC: What drives their capital structure?

This study examines the determinants of the capital structure at family-owned businesses in the member countries of the Gulf Cooperation Council (GCC), focusing on internal company characteristics and their impact on leverage decisions. It analyzes panel data on 99 family-owned companies in the London Stock Exchange Group (LSEG) database (2015-2023), using fixed-effects regression and instrumental variable–two-stage least squares (IV-2SLS) approaches to address potential endogeneity. The findings reveal that profitability and sales growth negatively impact leverage, supporting the pecking order theory, while asset tangibility and firm size positively influence leverage. Liquidity, the market-to-book value, and firm age become significant, with different effects in addressing endogeneity. The interest rate negatively predicts leverage, whereas regulatory quality contributes to an increase in the size of leverage. This study contributes to the sparse research on the determinants of the capital structure at GCC family businesses by providing insights into how family ownership influences financing decisions in gulf countries and examining the relevance of capital-structure theories in this context. The findings offer valuable insights for family business owners, managers, and policy makers in the GCC, contributing to effective financial management, succession planning, and the long-term sustainability of family businesses.