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Developing country capital structures and emerging stock markets

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  • Demirguc-Kunt, Asli

Abstract

In the developing world financing patterns vary greatly from what we observe in developed countries. In the poorest developing countries firms rely mostly on internal resources and informal credit markets for financing. This paper seeks to investigate the impact of emerging stock markets on the financing patterns of developing country corporations. The focus is to test whether equity markets and banking systems are complements or substituteds in providing financing to corporations. It is possible to answer this question by investigating capital structures of firms across a sample of countries with different levels of stock market development. If equity is substituted for debt financing one would expect countries with less developed stock markets to have higher leverage. However, if the opposite is true and there is complementarity between equity markets and banks, leverage would increase as stock markets become more developed. This paper discusses key properties of debt and equity contracts in financing decisions and reviews the literature on capital structure to identify relevant factors, other than stock market development, that may affect the financing pattern of corporations. It also presents preliminary empirical findings and identifies directions for further research.

Suggested Citation

  • Demirguc-Kunt, Asli, 1992. "Developing country capital structures and emerging stock markets," Policy Research Working Paper Series 933, The World Bank.
  • Handle: RePEc:wbk:wbrwps:933
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    Cited by:

    1. Sheng, Andrew & Yoon Je Cho, 1993. "Risk management and stable financial structures," Policy Research Working Paper Series 1109, The World Bank.
    2. Guglielmo Maria Caporale, & Peter G. A Howells, & Alaa M. Soliman,, 2003. "Endogenous growth and Stock Market Development," Working Papers 0302, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    3. J.C.Ihemeje & Geff Okereafor & Bashir M. Ogungbangbe & Geogenia Edeoga, 2015. "Internal Corporate Governance and the Performance of Commercial Banks in Nigeria," International Journal of Management Science and Business Administration, Inovatus Services Ltd., vol. 1(12), pages 17-25, November.
    4. Demirguc-Kunt, Asli & Levine, Ross, 1993. "Stock market development and financial intermediary growth : a research agenda," Policy Research Working Paper Series 1159, The World Bank.

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