THE IMPACT OF MARKET COMPETITION ON CAPITAL AND OWNERSHIP STRUCTURES: INSIGHTS FROM GCC COUNTRIES

Abstract

This study examines the impact of sector-level market competition on the ownership and capital structures of publicly listed firms in the Gulf Cooperation Council (GCC) countries. Using an extensive dataset comprising over 150,000 data points from 6,215 firm-year observations between 2010 and 2020, we employ the system-Generalized Method of Moments (GMM) model for that can be used to analyze panel data with more robust estimates and deal better with endogeneity using instrument variables. The findings indicate a significant negative relationship for total block holders and institutional ownership variables with competition proxies of Herfindahl-Hirschman Index (HHI) and Tobin's-Q. This suggests that firms in monopolistic or oligopolistic sectors are more likely to attract block holder investors. Regarding capital structure, the results demonstrate that competition metrics (HHI and Tobin's-Q) significantly influence capital structure (measured as debt-to-equity and debt-to-asset ratios. The relationship varies across different model specifications, with key external factors such as the 2014 oil crisis and the 2017 GCC political crisis also playing a significant role in shaping firms' financial structures. This research provides valuable insights into the role of competitive market dynamics in shaping firm ownership and capital structures, particularly within the unique economic and institutional setting of the GCC. By addressing the gap in market competition research in this region, the study contributes to a deeper understanding of how competition influences economic development, investor protection, market efficiency, and corporate governance. These findings offer practical implications for policymakers and stakeholders in formulating effective regulatory and investment strategies that relate to market competition.