http://ijfr.sciedupress.com International Journal of Financial Research Vol. 12, No. 1; 2021 Published by Sciedu Press 158 ISSN 1923-4023 E-ISSN 1923-4031 Target Capital Structure of Egyptian Listed Firms: Importance of Growth and Risk Factors Aly Saad Mohamed Dawood 1 & Mahmoud Otaify 2 1 Sadat Academy for Management Sciences, Faculty of Management seconded to Heliopolis University for Sustainable Development, Faculty of Business and Economics, Egypt 2 The British University in Egypt, Faculty of Business Administration, Economics and Political Science, Egypt Correspondence: Aly Saad Mohamed Dawood, Sadat Academy for Management Sciences, Faculty of Management seconded to Heliopolis University for Sustainable Development, Faculty of Business and Economics, Egypt. Received: August 29, 2020 Accepted: October 23, 2020 Online Published: December 24, 2020 doi:10.5430/ijfr.v12n1p158 URL: https://doi.org/10.5430/ijfr.v12n1p158 Abstract This paper investigates the determinants and adjustment speed to the target capital structure of the Egyptian Listed firms over the period of 2009 – 2018. We use panel regression analysis to examine role of growth factors as well as risk factors in explaining the dynamics of target leverage. The main findings of the growth factors model (GFM) reveal that political risk, profitability and stock market return are negatively affect the target leverage of Egyptian firms. In contrast, investment opportunities, non-debt tax shield, firm size have significant positive effect on the target leverage. On the other hand, the results of risk factors model (RFM) indicate that political risk, size and profitability lose their significant effects for the account of firm risk, stock return, investment and asset tangibility. The business risk captures the effect of political risk on the target leverage. Interestingly, both the investment opportunities and the non-debt tax shield preserve their positive effects and thereby they are considered as the most important firm-specific determinants of the target leverage. We find no significant effects of the economic growth, macroeconomic risk and stock market volatility on the target leverage in Egypt. Regarding the adjustment speed and in the presence of growth (risk) factors, the Egyptian firms take 2.7 (4.4) years to adjust their current leverage toward the target leverage. Keywords: adjustment speed, firm-specific risk, stock market volatility, macroeconomic risk, political risk, EGX100 index 1. Introduction Capital structure is defined as mixture of debt and equity used to fund a firm’s long-term assets. A number of famous theories provide insights about corporate capital structure decisions, namely, trade-off theory provided by Miller (1977) which argues that managers could trade-off between the tax benefits of debt and the cost of financial distress to select the leverage ratio; signaling theory introduced by Ross (1977) which asserts that managers have superior information about the firm, thereby they could convey information to investors through signals such as increasing (or decreasing) investments, leverage, asset accumulation and share repurchases; pecking order theory suggested by Myers and Majluf (1984) which proposes that firms prefer internal financing to external financing due to factors such as asymmetric information and agency costs. If the internal funds are insufficient, the firms start external financing with debt issuance before resorting to equity financing. Market-timing theory provided by Baker and Wurgler (2002) suggests that firms react to the increase in market share prices by issuing equity. These theories subject to empirical investigation by large numbers of studies to identify determinants of capital structure in different industries and markets. In this regard, it is plausible to examine role of firm characteristics in explaining corporate leverage. So, there is intensive research tends to explore the most significant firm-specific determinants of capital structure (e.g., Devos, et. al., 2012; Belkhir, et. al., 2016; Rashid, 2014; Kent and Kilincarslan, 2018; Shibata and Nishihara, 2018). Other studies attempt to examine the impact of macroeconomic variables on the corporate leverage levels (e.g., Benavente, et. al., 2003; Arena and Roper, 2010; Brei and Charpe, 2012; Li, et. al, 2014; Mokhova and Zinecker, 2014; Groh and Wallmeroth, 2016; Pindado, et. al., 2017; Chow, et. al, 2018; Giombini, et. al, 2018). Number of studies suggest that firms considerably consider both firm-specific and economic risks when making external financing decisions and debt-equity choices. For example, Bokpin (2010) finds that firm level variables