Capital Structure Choke in the Emerging Capital Markets

This paper contributes to existing research on capital structure in developing markets. The evidence suggests that based on a sample containing 1,736 non-financial firms for a period 2007-2014 from 6 countries with emerging economies, the conventional capital factors seem to capture some capital structure decisions. The included countries are Chile, Egypt, Malaysia, Poland, Thailand, and Turkey. The significance and signs of profitability, size, and growth coincide with the evidence from developed countries, while tangibility is negatively significant. Inflation with GDP are positively significant at explaining the market values of total and long-term leverages. The effects of better credit institutional quality and better anticorruption environment are significantly positively related to market value of total and long-term leverages, while the negative significant effect of better tax system institutional quality is captured only at total market leverage. The interesting part of the work is the analysis of interactive variables. The results are that profitable firms have less leverage during the expansion of economy, the negative impact of tangibility is less pronounced in the better anticorruption environment, and firms with high growth opportunities prefer less leverage with increase in size.