Fund Mobilisation and Investment Behavior in Thai Manufacturing Firms in the Early 1990s

This paper investigates the capital structure and investment behaviour in Thailand in the early half of the 1990s. First, we examine the idea of 'pecking order' preferences for firms' fund raising in developing countries generally and in Thailand in particular. We consider unique features such as the low degree of firm participation in the organized securities market and the high dependence on informal financial transactions, or quasi self-financing. Next, we estimate the determinants of the capital structure and the investment function. We found a lot of interesting results. First, the debt ratio of listed firms is lower than that of non-listed firms, which is realised by the increase in the capital surplus gained by initial public offerings. Second, however, participation by firms in the organized securities market accommodates agency costs, not only in equity markets, but also in the market for bank loans as a 'by-product' effect, which reduces informal financial transactions. Third, manufacturing firms belonging to the 'financial conglomerate' are surprisingly inactive investors and dependent on informal financial transactions, whereas foreign firms borrow less and invest more. In addition, of the various fund mobilization methods, only bank loans, particularly long-term loans, promptly affect equipment investment by firms.