Determinants of Financing Behavior in Libyan Commercial Banks and Their Alignment with Capital Structure Theories: An Empirical Analysis of the Period 2011–2023

Abstract

This study aimed to identify the determinants influencing the financing behavior of Libyan commercial banks during the period 2011–2023 and to examine the extent to which this behavior conforms to capital structure theories. The study covered six of the largest and oldest Libyan commercial banks and adopted a mixed-methods approach, utilizing interviews, questionnaires, and quantitative analysis through the Generalized Method of Moments (GMM). The determinants examined included internal factors (profitability, liquidity, size, growth, and asset tangibility), external factors (business environment, political and economic changes, and macroeconomic variables), as well as behavioral factors related to decision-makers’ characteristics, such as overconfidence, behavioral biases, risk-taking tendency, and herd behavior. Financial leverage, measured by the ratio of total debt to total assets, was used as a proxy for financing behavior. The findings revealed that profitability was the most influential determinant, as higher profitability increased reliance on internal financing and reduced dependence on external funds, supporting the Pecking Order Theory. Other internal determinants produced mixed results, while macroeconomic variables showed no statistically significant effect. In addition, the effects of certain behavioral factors and asset tangibility remained inconclusive