EFFECT OF MACROECONOMIC FACTORS ON CAPITAL STRUCTURE OF FIRMS IN DEVELOPING AFRICA: A TWO-STEP GMM APPROACH

Abstract

The study examines the effects of macroeconomic factors and on capital structure of non- financial firms in Africa. Using a recent data for an advanced dynamic model (2step system generalized methods of moment (GMM)) technique for a panel data model of 406 non-financial firm of 8 developing African nations. The findings reveal that macroeconomic variables are determinant of capital structure of non-financial in Africa. The findings show that financial managers can benefit from raising additional capital as macroeconomic conditions are favorable. Moreover, shareholders should employ firm managers with good knowledge of macroeconomic conditions and also encourage them raise debt capital needed to fund positive investment. Lastly, Policymakers should enact policies that promote financial market development because such policies would complement the banks’ financing strategies and firms would have more access to debt capital.

Keywords

• Capital Structure
• Macroeconomic Factors
• Developing Africa
• Generalized Methods of Moment (GMM)