WASHINGTON, D.C., Sept. 28 -- A new study
by the International Finance Corporation (IFC) considers how firms in developing
countries decide between debt and equity as a means of raising finance.
The study surveys the development of capital markets in six emerging countries
-- Argentina, Brazil, Chile, India, Indonesia, and Turkey -- and relates
that development to the financing decisions of firms. It examines how market
conditions together with government regulations and institutional features
collectively influence capital structure decisions in these countries.
The study finds that firms in developing countries face a number of constraints
in the financing choices that are available. These constraints include
government controls, which often limit the menu and pricing of capital
market instruments. The market also imposes constraints, such as limiting
the maturities available in unstable macroeconomic environments. The study
concludes that, with financial liberalization underway in many countries,
are beginning to re-examine their financial structures. They now have
a richer and less constrained menu of instruments to choose from including
access to international markets that offer cheaper capital than was previously
available. Titled Debt or Equity? How Firms in Developing Countries Choose
(Discussion Paper 22), the study was written by Jack Glen and Brian Pinto
of IFC's Economics Department. IFC is a member of the World Bank Group
and is the largest multilateral source of equity and loan financing for
private sector projects in developing countries. (30) N.B. To receive a
copy of the study please call Edith Onuoha at (202) 473-5316 or Roderick
Garnett at (202) 473-3397.