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, companies
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.
