| المستخلص: |
Capital structure is and has been one of the most important issues in business literature for over half a century, from Modigliani and Miller (MM) irrelevance assumption of capital structure seminar in 1958 to the several capital structure theories that are now found in the 21st century. After over half a century since the establishment of Modigliani and Miller theory, now, one can find a number of capital structure theories suggesting several elements that could influence a corporation’s capital structure decision. Capital structure is an important aspect in corporate financing. Achieving an optimal structure is the concern of finance managers and the corporation in general. Given the fact that Modigliani and Miller are the pioneers in capital structure analysis, tax is at the heart of the model in determining capital structure and dividend policy of the firm. In the MM proposition, they implied that the independent variables of the function of cost of equity in a non-existent tax world are debt equity ratio (leverage), cost of debt and required return of assets. In Saudi Arabia, tax factor is noted as one of the major factor differentiating the characteristics of corporations. By taking samples of firms for weighted average cost of capital (WACC) calculation and debt equity ratio, it can be inferred as to the direction of capital structure of firms in Saudi Arabia. This paper seeks to analyse zakat and modern tax system in Saudi Arabia as-well-as investigating a number of Saudi and UK companies WACC and return on invested capital (ROIC) in order to analyse the impact tax systems may have on the capital structure of Saudi companies in comparison with UK. Though there are several elements that could influence the capital structure of companies, this paper will focus on tax systems, specifically to zakat and modern tax system within Saudi Arabia.
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