Capital structure and profitability in a tax-free country: evidence from the UAE

Imen, Tebourbi
Irene, Wei Kiong Ting
Kweh, Qian Long
Harith, Ali Hamood Al Huseini
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Inderscience Publishers
The balance between debt and equity is a key factor explaining profitability. This study examines how capital structure affects the profitability of firms listed on stock exchanges in the United Arab Emirates (UAE), a country that does not have a federal corporate income tax regime. The proxies of capital structure used include total, short-term, and long-term debt ratios, while those of profitability are return on assets and return on equity. Over a 2001-2016 sample period, this study documents a significantly negative association between capital structure and profitability. This study finds that the negative association is mainly found in companies with a high level of debts. The results of this study not only imply that information asymmetry exists, they also highlight how capital structure and profitability are associated in the context of a corporate tax-free country. Copyright © 2020 Inderscience Enterprises Ltd.
This article is not available at CUD collection. The version of scholarly record of this article paper is published in Afro-Asian Journal of Finance and Accounting (2020), available online at:
Capital Structure , Debt , Information asymmetry , Profitability , United Arab Emirates
Tebourbi, I., Ting, I.W.K., Kweh, Q.L., & Al Huseini, H.A.H., (2020), Capital structure and profitability in a tax-free country: Evidence from the UAE, Afro-Asian Journal of Finance and Accounting.