The effect of significant macroeconomic fluctuations on the capital structures of firms in emerging markets

Abstract

A firm’s capital structure decision is guided by factors both internal and external to the organisation. This paper tests the extent to which international macroeconomic factors, particularly a considerable market shift, affect firms’ capital structures by using the global financial crisis of 2008 as a reference point. The study investigates the degree to which firms’ capital structures are changed in a variety of countries and industries within emerging markets, hypothesising that firms’ capital structures have changed post-financial crisis. The research is conducted by means of a quasi-experimental event-based time-series study, with the financial crisis of 2008 considered the fulcrum. Data from five years before, and five years after the event provided the basis for statistical analysis. The study found that leverage in emerging market firms is counter-cyclical and that country specific and industry specific factors influenced the degree of effect that the financial crisis of 2008 had on capital structures of firms over the studied period.