FINANCIAL MARKET DEVELOPMENT AND CAPITAL STRUCTURE OF LISTED FIRMS - EMPIRICAL EVIDENCE FROM GHANA

Abstract

This study explores the relationship between financial market development and choice of finance(debt-equity) of listed firms in Ghana in a panel data framework.The core concern of this study is totest whether debt and equity finance are complements or substitutes. The study used panel data whichinvolves pooling of twenty-one listed firms on the Ghana Stock Exchange (GSE) over the period1995-2005. The study finds evidence of complementarity between banking and stock marketdevelopments in financing decisions of listed firms in Ghana. The stock market development isindicated to have a positive effect on the capital structure decisions of listed firms. However,substitution effect between debt and equity mainly in favour of equity financing sets in as thefinancial landscape develops further. This finding emphasises the important role equity markets indeveloping countries play in capital structure of listed firms.

Keywords

• Financial market Development
• Capital Structure
• Complementarity
• substitute
• Ghana