Corporate Finance Practice in Kuwait: A Survey to Confront Theory with Practice

27 Pages Posted: 19 Aug 2009

See all articles by Mohammad Eid Al Mutairi

Mohammad Eid Al Mutairi

University of Wollongong - Faculty of Commerce

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Andrew Tan

University of Wollongong

Date Written: May 20, 2009

Abstract

This study reports the results of a survey among 80 CFOs in Kuwaiti listed firms on current corporate finance practices namely, capital budgeting, costs of capital, capital structure, and dividend policy. This paper analyses specifically the survey responses according to the firm’s attributes and CFO’s characteristics such as firm size, sector, equity, CFO’s education, ownership, tenure, age, and target debt ratio. The results of this survey-based analysis indicate that there is some evidence of the application of basic corporate finance tools that are inline with what is taught in classrooms. For example, we find that a surprising number of firms are widely using IRR now as a capital budgeting techniques for decisions making today despite its limitation. The CAPM is also in use now to estimate the cost of equity capital whereas WACC remains the most popular used method due the simplicity of the tax system in Kuwait. We find some support for the “Bird-In-Hand” dividend theory. We also find that firms do not have any particular source of capital structure choices when it comes to how best finance their projects as is the case in the US market. This finding reveals that finance theory is not yet fully implemented. The results also indicate that corporate finance practices vary depending on firm and management characteristics.

Keywords: Capital budgeting, costs of capital, capital structure, dividend policy, Kuwait

JEL Classification: G30, G31, G32

Suggested Citation

Al Mutairi, Mohammad Eid and Tian, Gary Gang and Tan, Andrew, Corporate Finance Practice in Kuwait: A Survey to Confront Theory with Practice (May 20, 2009). 22nd Australasian Finance and Banking Conference 2009, Available at SSRN: https://ssrn.com/abstract=1456750 or http://dx.doi.org/10.2139/ssrn.1456750

Mohammad Eid Al Mutairi (Contact Author)

University of Wollongong - Faculty of Commerce ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Andrew Tan

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
502
Abstract Views
3,389
Rank
103,489
PlumX Metrics