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Developing country capital structures and emerging stock markets

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Author Info
Demirguc-Kunt, Asli

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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.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 933.

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Date of creation: 31 Jul 1992
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Handle: RePEc:wbk:wbrwps:933

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

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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.:
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    Other versions:
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    Other versions:
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Full references

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. Guglielmo Maria Caporale, & Peter G. A Howells, & Alaa M. Soliman,, 2003. "Endogenous growth and Stock Market Development," Discussion Papers 0302, University of the West of England, Department of Economics. [Downloadable!]
  2. Sheng, Andrew & Yoon Je Cho, 1993. "Risk management and stable financial structures," Policy Research Working Paper Series 1109, The World Bank. [Downloadable!]
  3. 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. [Downloadable!]
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