Stock market development and financing choices of firms: Case Study of a SIDS
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26 November 2022
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This paper attempts to empirically investigate the link between stock
market development and firms’ capital structure, an often overlooked
relationship in finance theory, for the case of 38 firms listed on the stock
exchange of Mauritius (SEM) for the period 1994-2005. Results from the
panel estimates suggest that further development of the market has been
associated with debt financing for non financial firms while this is not the
case for financial firms which have been substituting equity for debts. An
overall positive relationship between the size of the banking sector and
leverage exists as well. The other major determinants of capital structure
in Mauritius are reported to be profitability, size, tangibility and liquidity
and other factors such as business risk, growth opportunities while Non
Debt Tax Shield do not seem to have any significant impact on capital
structure.