Institutional Determinants of Firms' Capital Structure in Selected African Countries

Abstract

A firm's capital structure decision is one of the main financial decisions in the corporate world due to the perceived effect it has on firm value. In addition to firm-specific and macroeconomic factors, institutional factors are important determinants of capital structure. This study investigates the effect of institutional factors on capital structure decision of firms in developing African countries. The study used a sample of 599 firms from nine selected countries employing the two-step system generalised method of moments to estimate the regression coefficients. Findings from the study reveal that government effectiveness, regulatory quality and financial market development are significant in explaining the capital structure a firm adopts in the selected countries.