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Stock market development and firm financing choices

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  • Demirguc-Kunt, Asli
  • Maksimovic, Vojislav

Abstract

The authors empirically analyze the association between firm financing choices and the level of development of financial markets in 30 countries for the period 1980-91. For the whole sample, there is a statistically significant negative correlation between stock market development, as measured by the ratio of market capitalization to gross domestic product, and the ratios of both long-term and short-term debt to firms'total equity. For developed markets in the sample, further stock market development leads to a substitution of equity for debt financing. In developing markets, by contrast, large firms become more leveraged as the stock market develops, whereas the smallest firms appear not to be significantly affected by market development.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1461.

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Date of creation: 31 May 1995
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Handle: RePEc:wbk:wbrwps:1461

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Related research

Keywords: Banks&Banking Reform; Economic Theory&Research; Payment Systems&Infrastructure; Financial Intermediation; International Terrorism&Counterterrorism; Economic Theory&Research; Financial Intermediation; Banks&Banking Reform; Housing Finance; Environmental Economics&Policies;

References

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  1. Maksimovic, Vojislav & Titman, Sheridan, 1991. "Financial Policy and Reputation for Product Quality," Review of Financial Studies, Society for Financial Studies, vol. 4(1), pages 175-200.
  2. Levine, Ross & Renelt, David, 1991. "A sensitivity analysis of cross-country growth regressions," Policy Research Working Paper Series 609, The World Bank.
  3. Demirguc-Kunt, Asli & Levine, Ross, 1995. "Stock market development and financial intermediaries : stylized facts," Policy Research Working Paper Series 1462, The World Bank.
  4. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  5. Bencivenga, Valerie R & Smith, Bruce D & Starr, Ross M, 1996. "Liquidity of Secondary Capital Markets: Allocative Efficiency and the Maturity Composition of the Capital Stock," Economic Theory, Springer, vol. 7(1), pages 19-50, January.
  6. Ritter, Jay R., 1987. "The costs of going public," Journal of Financial Economics, Elsevier, vol. 19(2), pages 269-281, December.
  7. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
  8. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
  9. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-75, May.
  10. Pagano, Marco, 1993. "The flotation of companies on the stock market : A coordination failure model," European Economic Review, Elsevier, vol. 37(5), pages 1101-1125, June.
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