Corporate financial patterns in industrialising economies: a comparative international study

In the first large-scale comparative studies of corporate financing patterns of large firms in leading developing countries (DCs), Singh and Hamid (1992) and Singh (1995) arrived at some rather surprising conclusions. This research showed that although there are variations in corporate financing patterns among developing countries, in general, corporations in the sample countries rely very heavily on (a) external funds, and (b) new share issues on the stockmarket to finance the growth of their net assets. These findings are opposite to what most economists would predict. In view of the low level of development of DC capital markets and their greater imperfections, one would expect these corporations to rely much more on internal, rather than external finance. Moreover, for the same reasons, one would also expect them to resort to the stockmarket to a very small degree, if at all, to raise finance. The Singh and Hamid conclusions also run contrary to the "pecking order" pattern of finance which is thought to characterize advanced country corporations, whereby the latter mostly use retained profits to finance their investment needs; if more finance is required, they have recourse to banks or long-term debt, and go to the stockmarket only as a last resort.