Intellectual capital and institutional governance as capital structure determinants in the tourism sector

• Published in: Journal of intellectual capital 2023-03, Vol.24 (2), p.430-464
• Main Authors: Dalwai, Tamanna, Sewpersadh, Navitha Singh
• Format: Article
• Language: English
• Subjects: Capital structure; Competition; Competitive advantage; Coronaviruses; COVID-19; Economic growth; Efficiency; Innovations; Intellectual capital; Literature reviews; Long term debt; Medical research; Pandemics; Robustness (mathematics); Rule of law; Tourism
• ISSN: 1469-1930; 1758-7468
• DOI: 10.1108/JIC-03-2021-0085

PurposeThis study investigates the capital structure determinants of the Middle East tourism sector by examining intellectual capital (IC) efficiency and institutional governance along with firm-specific and macroeconomic variables. This research also identifies the determinants of capital structure for tourism companies in the Gulf Cooperation Council (GCC) and non-GCC countries.Design/methodology/approachData were collected from 45 listed tourism companies of nine Middle Eastern countries over five years from 2014 to 2018. The data were analysed using ordinary least squares (OLS) regression and checked for robustness using the generalised methods of moment (GMM) estimation.FindingsOverall, the results indicate that tourism companies rely more on short-term debt (STD) than long-term debt (LTD), thus decreasing liquidity and increasing financial risk. Furthermore, tourism companies in non-GCC countries have higher IC efficiency compared to those in GCC countries. The aggregate institutional index is much higher for GCC countries compared to non-GCC countries. The OLS estimations suggest IC efficiency and institutional governance index provide inconclusive evidence as a determinant of capital structure proxy. High capital employed efficiency (CEE) is associated with more leverage for tourism firms. Theoretically, the results support pecking order and trade-off theories due to the relationships between firm-specific indicators and debt.Originality/valueThis study closes the gap in the capital structure debate by providing valuable insights into IC efficiency and institutional governance. These two factors serve as capital structure determinants in the Middle East and the GCC and non-GCC regions.