Corporate Finance Practice in Kuwait: A Survey to Confront Theory with Practice
27 Pages Posted: 19 Aug 2009
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: Suggested Citation
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