A Comparative Study of Capital Structure Decisions in Developed vs. Emerging Markets
Abstract
This paper examines the differences in capital structure decisions between firms operating in developed and emerging markets. Using a comprehensive analysis of existing literature and empirical evidence, we investigate how institutional frameworks, market conditions, and firm-specific factors influence financing choices across these distinct economic environments. Our findings indicate that while traditional capital structure theories provide some explanatory power in both contexts, their applicability varies significantly due to institutional voids, information asymmetries, and macroeconomic volatility present in emerging markets. Firms in emerging markets tend to rely more heavily on internal financing, short-term debt, and relationship-based borrowing compared to their counterparts in developed markets. These differences have important implications for corporate financial management, investor decision-making, and policy formulation in developing economies.
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