The Effects of Financial and Credit Constraints on Capital Structure Choice in Emerging Markets
Date Issued
2008
Date
2008
Author(s)
Saeliw, Kannika
Abstract
This study investigates the effects of the credit constraints and financial constraints of firm on the capital structure choice in emerging markets by using the panel regression method. Since focused firms are likely to become credit constrained due to their lower credit quality, this research uses focused firm as the measure for credit constrained firm. Additionally, this research identifies firms as financial constrained if firms have investment opportunities but do not have sufficient cash to invest. he results indicate that (1) focused firms have lower leverage ratio than diversified firms, (2) financial constrained firms have lower leverage ratio than financial unconstrained firms, (3) firms which are facing both financial constraints and credit constraints have low leverage ratio. The empirical evidence for the impacts of financial and credit constraints suggests that diversification can alleviate credit constraints, and the contracting costs hypothesis dominates the pecking order hypothesis when firms have financial constraints.
Subjects
credit constraints
financial constraints
capital structure
emerging markets
Type
thesis
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