Stock Market Development and Financing Choices Of firms:

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