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Theory and Practice of Corporate Finance: Evidence from the Listed and Non Listed Firms in Kuwait

In January and September of 2007 we surveyed 120 CFOs. About the CFOs and CEOs in Kuwaiti listed and non listed firms on current corporate finance practices to be precise, capital budgeting, costs of capital, capital structure, and dividend policy. We also collected information on 12 characteristics of the firms and management. This paper analyses specifically the survey responses according to the firm’s attributes and characteristics We asked questions about firm size, sector, equity, CFO’s and CEO education level, ownership, tenure, age, and target debt ratio. For example, we find that a surprising number of listed and non listed firms are widely using IRR now as a capital budgeting techniques for decisions making today despite its limitation. We find some support for the “Bird-In-Hand” dividend theory. We also find that firms do not have any particular source of capital structure choices when it comes to how best finance their projects as is the case in the US market. This finding reveals that finance theory is not yet fully implemented. The CAPM is also in use now to estimate the cost of equity capital whereas WACC remains the most popular used method due the simplicity of the tax system in Kuwait.