Capital structure in developing countries

We find this positive relation, when we Capital structure in developing countries at the correlations between asset tangibility and long term debt.

As GDP per capita and growth increase, medium firms borrow more short term debt. As profitability increases, short term debt decreases.

The mean of leverage is percent while the median is percent. Most of the countries are low income and lower middle income countries from different regions.

The coefficient estimate for size is positive implying that larger firms have more short term debt.

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Hence, we confirm that our results are robust for different size proxies. Also lenders may prefer to fund listed companies because the quality of information provided by them is more reliable than private firms.

Firms prefer to be financed internally if they have enough internal sources. Tax variable is taken as a country s highest marginal corporate tax rate Bartholdy and Mateus, Insert table 4 panel A here Most of the macroeconomic variables are significant.

Firm level variables are inversely related to the short term debt. We control for five macroeconomic variables: The coefficient estimate for asset tangibility is positive, implying that firms with more collateral have more long term debt. Profitability does not affect the short term debt financing decisions of listed firms.

As profitability increases, small firms prefer to use internal sources. Firms continue to finance themselves with short term debt although cost of interest rises. We repeat each estimation with different definitions of size: In accordance with Pecking Order theory, profitable firms prefer to finance internally.

The countries included in our sample are different from the previous studies. Van der Wijst and ThurikHall et al. For small firms, agency conflicts between shareholders and lenders may be particularly severe Ang Since debt contracts are generally nominal contracts, the rate of inflation may influence the riskiness of debt financing so that the lenders are more likely to avoid providing debt.

The coefficient estimate for interest is positive, implying that as interest increases, leverage increases.

The Growth rate of the economy is a measure of the growth opportunities available to firms in the economy. Hence, we confirm the importance of firm level factors in accordance with the capital structure theory.

As tax increases, short term debt increases. The profitability does not have an effect on leverage decisions of listed firms. But in some regression, GDP per capita, interest rate and tax rate become insignificant as opposed to what we found previously.

As economy grows, short term debt increases. We use size dummy variable for small and large firms which are based on the firms number of employees. So we expect profitability to be inversely related to leverage and debt maturities for small and large firms.

The coefficient estimate for inflation is negative, indicating that increases in inflation causes firms to borrow less. Some of the macroeconomic variables are statistically significant. The coefficient estimate for interest and tax are positive, implying that as interest and tax increase, firms borrow more short term debt.

The countries we include are the developing countries from different regions at different level of financial development. On average percent of the firms assets are fixed assets which can be used as collateral. Large firms have access to both domestic and international financial markets; therefore, the changes in economic environment of the country do not affect them as much as small firms.

Since large listed firms can easily have access to both national and international financial markets, it could be misleading to accept and generalize the results of these studies for all types of firms, especially for small firms who might not have the same access to financial markets. Interest has a negative coefficient estimate, indicating that as interest rate increases, firms avoid financing themselves with long term debt.

Is there a size effect on the leverage decisions of firms? We estimate the following model: Panel A Column 1 shows the results of leverage regression. Growth is positively correlated with leverage and long term debt, while it is inversely related with short term structure choices made by companies from developing countries that have different institutional structures.

The prevailing view, for example Mayer () seems to.

Determinants of Capital Structure in Developing Countries

The capital structure choice has long been examined in the corporate finance literature of the developed countries; few studies emerged to examine the capital structure in developing markets.

of ten developing countries using annual data for We describe observed financial structure choices and compare them to U.S.

financial structure choices. We ask whether models of developed for United States institutions explain capital stucture choices in our panel of developing countries. 2 The purpose of this paper is to investigate capital structure decision of firms in developing countries.

We use firm level survey data for 25 countries in different stages of financial development from different regions.

Our main focus is on small and private firms. We investigate the determinants of capital structure of firms for 25 developing countries covering all regions, Africa, East Asia and Pacific, Latin America and.

Title: Capital Structure In developing Countries. Abstract: In this article a study is conducted through different developing countries to know that capital structure theory is portable across different countries with different institutional structures.

Capital structure in developing countries
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