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

Date
2020
Authors
Imen, Tebourbi
Irene, Wei Kiong Ting
Kweh, Qian Long
Harith, Ali Hamood Al Huseini
Journal Title
Journal ISSN
Volume Title
Publisher
Inderscience Publishers
Abstract
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.
Description
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: https://www.inderscienceonline.com/doi/abs/10.1504/AAJFA.2020.108257
Keywords
Capital Structure, Debt, Information asymmetry, Profitability, United Arab Emirates
Citation
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. https://www.inderscienceonline.com/doi/abs/10.1504/AAJFA.2020.108257