Understanding Financial Structure of Non-Listed Firms in MENA Panel Data Approach Applied to Moroccan Firms

The purpose of this paper is to empirically investigate the determinants of financial structure in non-listed Moroccan manufacturing firms using a panel data approach. There is a relatively vast body of theory-derived literature relating corporate capital structure to firm and industry characteristics. However, most studies use data on listed companies, and normally focus on developed countries. Yet, there are reasons to expect that capital structure decisions of nonlisted firms are constrained either by their own characteristics or by their limited access to financial and credit markets. This is particularly the case in developing countries where most firms are reluctant to open their equity to outside investors, and lack rigorous accounting standards that create higher information asymmetry for potential borrowers. In addition, since capital markets are less developed, the range of financial instruments available to non-listed firms is relatively narrow. Thanks to a panel dataset covering some 550 firms over the period 1998-2003, we are able to extend the existing empirical work on capital structure to nonlisted manufacturing firms in the specific context of a developing MENA country, namely Morocco. The findings of this paper are crucial to further understand the determinants of financial structure, and to provide useful insights to academics and guidance to policy makers. The key finding of the paper is: While, the existence of supply-side financial constraints is the main anecdotic evidence usually referred to in explaining the financial structure of the Moroccan firms, the evidence emerging from our paper indicates that demand-driven constraints can largely explain the financial structure. Hence, barriers to firms’ growth — frequently perceived as financial — are often managerial and cultural and therefore the availability of external funds may not always be sufficient to promote growth.