Abstract

This paper seeks to investigate which theory explains the capital structure of the commercial banks listed in the Kuwait stock markets: the pecking order theory or the tradeoff theory. The study used time series and cross-section panel data to test the hypothesis. The data spanned over a period of nine years from 2010–2018, using all commercial banks listed in the Kuwait stock market. The results showed that the trade-off theory is the best theory to conduct the capital structure of the Kuwaiti commercial banks while the pecking order theory presents a weak from. The paper proved that there was no heteroscedasticity in cross-sectional data nor auto correlation over the time series panel model.