The Effect of the cost of insolvency proceedings on the level of debt: The real estate sector in the Gulf Cooperation Council (GCC)

Abstract

Many types of research tackled the role of the insolvency law in dealing with distressed companies and projected different opinions on how to increase the market efficiency, what are the determinants of this efficiency, and how they affect capital structure’s choices and investment decisions. The inefficiency of insolvency law is certainly related to its administrative costs and to the length of its proceedings, while its efficiency is directly related to the optimal lessening of credit restrictions that increases the volume of financing and boosts the economy. The effect of efficient insolvency proceedings can motivate executives’ performance and induce business leaders to make sound and profitable investment decisions. In other words, high costs lead firms to forego investment projects. The aim of this article is to determine the effect of these administrative procedures on the level of debt of listed companies in the real estate sector in the GCC region. This study targeted the 73 listed real estate companies in the GCC covering a period of 11 years, 2008-2018. This study used a regression model to determine the nature of this relationship using STATA software, data was analyzed and results for the regression model were obtained. The results revealed a negative statistically significant relationship between the cost of insolvency proceedings (COIP) and the level of debt.