Consequences of Political Exits on Capital Structure: Brexit Case

The paper addresses the impacts of political exits on capital structure policies, through studying the impact of the Brexit deal on the UK’s companies listed at FTSE 100 as a practical case. The study is divided into two periods: the first before the Brexit deal (2010-2015) and the second after the referendum until Brexit (2016-2021). Data were collected from the annual reports of the UK companies and the FTSE 100 database. Moreover, capital structure policies were studied by analyzing the determinants such as long-term debt over total equity, profitability, tangibility, liquidity, propensity to pay dividends, size, and political factor—Brexit. The results show that there is a direct relationship between political exits and capital structure. Also, the results show that the financial ratios are different between the two periods (before and after Brexit), where it seems that the capital structure variables were affected starting from the referendum period, political negotiations between the two parties, and then Brexit (2016-2021). In addition, the correlation matrix shows that long-term debt over total equity has a negative correlation with profitability, liquidity, and political factors, where it seems that long-term debt over total equity has a positive correlation with tangibility, size, and paying dividends. Moreover, the results show that political shocks were affecting the FTSE 100 performance starting from 2016 until 2021. The study could be useful for financial and economic academics. Moreover, the study could be helpful for EU members and the UK government, taking into consideration the interests of the UK and EU where any future policies or laws will affect the financial and economic sectors of the two parties.

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