Corporate financial policies in emerging markets: the role of financial market development

Purpose – The paper aims to study the importance of financial market development and financial structure in explaining the financial policies of firms in emerging market countries. Design/methodology/approach – The paper uses a panel data of 32 countries and the system generalized method of moments approach. Findings – The analysis shows that stock market development is associated with higher use of external finance relative to internal finance, while bond market development is associated with lower use of external finance relative to internal finance. The findings of this study also indicate that stock market development tends to shift the policies of firms towards less debt and more equity, and bond market development is associated with higher debt and less equity in emerging economies. Originality/value – The value of this study is in respect of its contribution to the extant literature on corporate financial policies in emerging market economies.