The Impact of Governance on Capital Structure Decisions: An Analytical Study at Banks Operating in the Capital Municipality of Sana’a

Abstract

The study aimed to investigate the impact of banking governance on capital structure decisions: An analytical study of banks operating in Sana'a, Yemen. The study sample consisted of 7 banks, which are among the largest banks in Yemen. Financial data for these banks was obtained from the published financial statements during the period from 2011 to 2020. The data was analyzed, and the study hypotheses were tested using the multiple linear regression model. The study concluded with several findings, the most important of which were: significant attention to governance requirements issued by the Central Bank of Yemen, a heavy reliance on borrowing (deposits) for financing, and a strong negative impact of board independence, board size, and the disclosure and transparency index on borrowing-based financing in the capital structure. The study made several recommendations, the most important of which was the need to activate the supervisory role of non-executive board members by exercising effective control over the executive management's performance, reducing dependence on loans in the capital structure, and utilizing equity funds to achieve an optimal capital structure, which would protect banks from financial distress during crises.