The Impact of Diversifying Financing Sources on Increasing Firm Value in the Egyptian Construction Sector

Abstract

This study aims to measure the financial and strategic impact of diversifying financing sources on maximizing the market and economic value of construction and contracting companies listed on the Egyptian Exchange during the period (2018–2024), in light of rising interest rates, inflation and exchange-rate volatility that have increased the cost of relying on traditional bank credit. Financing diversification is measured by the share of non-bank instruments (securitization of receivables, sukuk and bonds) in the total financing structure, while firm value is measured by Tobin's Q and Economic Value Added (EVA), controlling for firm size, financial leverage and asset growth. The study combines a theoretical review of capital structure theories and modern financing instruments with an applied analysis of a purposive sample of leading companies in the sector, including Orascom Construction, Talaat Moustafa Group, The Arab Contractors and SODIC, using panel data regression models, the Hausman test and diagnostic tests. The results showed a positive, statistically significant effect of financing diversification on firm value, where a 1% increase in reliance on non-bank instruments raises Tobin's Q by 0.42%, and the fixed effects model was found to be the most appropriate. Companies that securitized their receivables narrowed their financing gap and lowered their weighted average cost of capital (WACC) more than companies that relied exclusively on bank loans. The study recommends adopting financial engineering within construction companies, matching financing maturities with project life cycles, simplifying the issuance of sukuk and securitization bonds, and supporting green financing, and it proposes an Integrated Financial Engineering Model (IFEM) to maximize the value of construction companies.