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Capital structures in developing countries : evidence from ten countries

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Author Info
Demirguc - Kunt, Asli
Maksimovic, Vojislav
DEC

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Abstract

The authors investigate capital structures in a sample of the largest publicly traded firms in ten developing countries - Brazil, India, Jordan, the Republic of Korea, Malaysia, Mexico, Pakistan, Thailand, Turkey, and Zimbabwe - for 1980 - 91. The firms in the sample are smaller than comparable U.S. firms, and the financial systems and regulations in these countries differ significantly from those in the United States. Not every country has well-functioning liquid financial markets in which investors can diversify risks. Nor do all countries have efficient legal systems in which a broad range of property rights can be enforced. Still, variables that predict capital structures in the United States also predict choices of capital structures in the countries sampled. Variables suggested by agency theory explain more of the variation than variables suggested by tax-based theories. For both short-term and long-term equations in most countries, the asset structure, liquidity, and industry effects have more explanatory power than firm size, growth opportunities, and tax effects. In several countries, total indebtedness is negatively related to net fixed assets, suggesting that markets for long-term debt do not function effectively.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1320.

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Date of creation: 31 Jul 1994
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Handle: RePEc:wbk:wbrwps:1320

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Related research
Keywords: Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; International Terrorism&Counterterrorism; Financial Intermediation;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March. [Downloadable!] (restricted)
  2. Vojislav Maksimovic, 1988. "Capital Structure in Repeated Oligopolies," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 389-407, Autumn. [Downloadable!] (restricted)
  3. Hart, O. & Moore, J., 1989. "Default And Renegotiation: A Dynamic Model Of Debt," Working papers 520, Massachusetts Institute of Technology (MIT), Department of Economics.
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  4. Maksimovic, Vojislav & Titman, Sheridan, 1991. "Financial Policy and Reputation for Product Quality," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 4(1), pages 175-200. [Downloadable!] (restricted)
  5. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kim, Hyesung & Heshmati, Almas & Aoun, Dany, 2006. "Dynamics of Capital Structure: The Case of Korean Listed Manufacturing Companies," Ratio Working Papers 93, The Ratio Institute. [Downloadable!]
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  2. Schmukler, Sergio & Versperoni, Esteban, 2000. "Globalization and firms'financing choices - evidence from emerging economies," Policy Research Working Paper Series 2323, The World Bank. [Downloadable!]
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  3. Julio de Brun & Eduardo Barbieri & Nestor Gandelman, 2002. "Investment Equations and Financial Restrictions at Firm Level: The Case of Uruguay," RES Working Papers 3155, Inter-American Development Bank, Research Department. [Downloadable!]
  4. Alba, Pedro & Claessens, Stijn & Djankov, Simeon, 1998. "Thailand's corporate financing and governance structures," Policy Research Working Paper Series 2003, The World Bank. [Downloadable!]
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