The Moderating Effect of Country-Specific Variables on the Relationship between Capital Structure and Its Drivers

This study analyzes the influence of institutional environment quality on the relationship between capital structure and its drivers in firms across the Gulf Cooperation Council (GCC) countries from 2012 to 2020. The findings from the dynamic model and the two-step system Generalized Method of Moments (GMM) estimator reveal that firms operating in more advanced financial environments—characterized by substantial financial size, elevated financial activity, and enhanced financial efficiency—and possessing stronger institutional quality—marked by high corporate governance indicators—do not exhibit a more robust correlation between capital structure and its determinants. Moreover, lagged leverage, profitability, growth opportunities, and liquidity emerge as key factors influencing capital structure decisions, aligning with the propositions of trade-off theory, agency theory, and pecking order theory.