MACROECONOMIC AND FIRM-SPECIFIC DETERMINANTS OF CAPITAL STRUCTURE OF LISTED FIRMS IN EMERGING MARKETS

Abstract

Capital structure has attracted much attention in accounting research (Rajan & Zingales, 1995). However, factors driving capital structure keep changing (Öztekin & Flannery, 2012). Hence, this study focuses on macroeconomic and firm-specific factors that influence enterprises’ capital structure decisions in emerging markets. We conduct longitudinal research, analysing data from seven emerging market companies from 2010 to 2018. The study used either a fixed effect or random effect model for estimation, depending on the outcomes of the Hausman specification test. Firm-specific factors such as growth prospects, debt capital cost, and firm size have a substantial impact on capital structure. Macroeconomic factors such as foreign direct investment, inflation rate, and gross domestic product (GDP) growth significantly impact enterprises’ leverage. However, the impact of these characteristics varies across countries, exhibiting distinct patterns in the countries under study. Though, firm-specific and macroeconomic variables explain the capital structure, not all firm-specific and macroeconomic variables are relevant in all African countries. Understanding the elements that influence capital structure decisions can help firms optimise their financing decisions, while regulators can create effective financial regulations.