Capital structure and debt maturity choices of firms in developing countries

The aim of the thesis is to examine the leverage and debt maturity levels and the determinants of capital structure and debt maturity of firms in developing countries. We use World Bank Enterprise Survey data covering 10,839 firms in 24 countries located in five regions. The survey provides information about balance sheet and income statements items allowing us to examine whether capital structure theory is portable to small firms in developing countries. We find that the leverage and debt maturity levels of small and large firms are different. Leverage and debt maturities are lower for small firms despite their high asset tangibility and profitability ratios. We attribute this to the economic and financial environment of the country. Small firms do not consider profitability when making external financing decisions. Firm level determinants are important for large firms regarding capital structure and debt maturity decisions. However, most of the economic and financial environment variables become insignificant. Therefore, the main difference between small and large firms is derived from the impact of the economic and financial environment of a country. Most of the economic and financial environment variables do not have statistically significant effects on the leverage and debt maturity decisions of large firms. We attribute this to large firms’ easy access to both domestic and international financial markets. Hence, if local governments provide better fiscal and monetary policies and a friendly business environment, small firms can amplify their leverage and debt maturity