CAPITAL STRUCTURE IN DEVELOPING COUNTRIES | Structure of Capital

In this article a study is conducted through different developing countries to know that capital structure theory is portable across different countries with different institutional structures. To make the article meaningful we have taken a sample of 10 countries those have different economies and financial structures. Different tools such as Total debt ratio, long-term debt Ratio, Long-term market debt ratio, turnover ratio, Regression, Coefficient of Variation, Standard Deviation, Return on asset and asset tangibility. After that it was concluded that some of the insight from modern finance theory are portable across countries, much remains to be done to understand the impact of different institutional features on capital structure choice.

Introduction:

The mix of long-term debt and equity financing maintained by a firm is called Capita

Structure Different type of work has been done in the past on capital structure such as the Mayer’s Theory on Developing countries and the most recently the study on G-7 countries by   Rajan and Zingales(1995) to understand the capital structure of developing countries. In his article we have taken a sample of 10 developing countries namely India, Pakistan, Thailand, Malaysia, Turkey Zimbabwe, Mexico, Brazil, Jordan, and Korea. Five of these countries were under British control in the past. Two are of American block and three others. 

The main Focus of this article is to answer the three questions:

• Do financial leverage decisions differ significantly between developing and developed countries?
• Are the factors that affect cross- sectional variability in individual countries’ capital structures similar between developed and developing countries?  
• Are the predictions of conventional structure models improved by knowing the nationality of the company?

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