Capital structure and market competition in the Gulf Cooperation Council

Purpose This study aims to examine the impact of sector market competition on the capital structure (measured by debt-to-equity and debt-to-asset ratios) of publicly listed firms in the Gulf Cooperation Council (GCC). Design/methodology/approach The methodology includes a two-step system-generalized method of moments (GMM) model for panel data and a set of ordinary least squares (OLS), random effects (RE) and fixed effects (FE) models. This study uses over 60,000 data points from approximately 6,215 firm-years (565 firms) across the six GCC countries from 2010 to 2020. Findings The results show that both the Herfindahl–Hirschman Index (HHI) and Tobin’s-Q competition proxies are significantly related to the capital structure variables in the following combinations and conditions: debt-to-equity-HHI (GMM), debt-to-equity-Tobin’s-Q (OLS), debt-to-asset-HHI (GMM, FE) and debt-to-asset-Tobin’s-Q (FE). Significant external factors such as the 2014 oil crisis and 2017 GCC political crisis also influence the capital structure-dependent variables. Originality/value Exploring the impact of competition on firms’ capital structures in the GCC region may provide new insights into the role of competitive markets in fostering new investment and economic development. This analysis holds promise in advancing investor protection, enhancing market efficiency and implementing effective reform strategies.