Corporate financing patterns in emerging markets in the 1980s and the 1990s

This paper addresses the following main issues: (1) What is the nature of corporate financing patterns (i.e. how corporations finance their investments and growth) in emerging markets, and how have these evolved during the 1980s and 1990s? (2) Are there significant differences in financing patterns (a) between emerging and mature markets, and, (b) between emerging markets themselves. (3) Can economic theory adequately explain the observed inter-country differences in financing patterns as well as the changes in these over time? (4) How do corporate financing patterns affect corporate governance? How does the latter in turn influence the former? The paper builds on the author's previous work in this field. [Singh and Hamid (1993), Singh (1995), Whittington, Singh and Saporta (1997), Singh (1997) and Singh and Weisse (1998)]. The former two studies were among the first large-scale comparative empirical analyses of corporate financing patterns in emerging markets (hereafter referred to as SH) . SH arrived at surprising and quite unexpected conclusions. This research showed that although there were variations in corporate financing patterns among developing countries, in general, corporations in the sample countries used more external than internal funds, to finance the growth of their net assets. Further, within external sources, the average developing country corporation used new share issues on the stock market to a surprisingly large degree. Even at an elementary level these conclusions are quite contrary to a priori expectations. In view of the low level of development and myriad imperfections of developing country capital markets, one would have expected these corporations to use more internal rather than external finance. For similar reasons, one would not expect immature and small stock markets to be a prominent source of funds for developing country corporations.