THE EFFECT OF FINANCIAL SYSTEM ON CAPITAL STRUCTURE DURING 2008 GLOBAL FINANCIAL CRISIS PERIOD.

This paper analyses the impact of financial systems on the capital structures of firms operating in developing countries during the 2008 global financial crisis. Traditionally, financial systems are classified according to their orientation as bank-oriented and market-oriented. The bank-oriented financial systems are characterized with an efficient banking sector and a relatively less-developed stock market. On the other hand, stock market is much more effective than the banking sector in a market-oriented system. It is reasonable to expect that the financial system orientation of a country is an important macroeconomic determinant of the external financing mix choices of firms operating in this country. Since both banking sectors and stock markets are affected from the 2008 global financial crisis, the effect of financial system orientation of a country on the capital structure may show interesting patterns during the crisis period. Our findings indicate that leverage ratios are higher for firms operating in countries with market oriented and developed financial systems during the 2008 global financial crisis. Besides, it is found out that there is an indirect effect of financial system development level on capital structure through the firm-specific factors. Generally accepted determinants of capital structure are effective only in countries with a relatively developed financial system while they are not helpful to explain capital structure decisions of firms in financially undeveloped countries during the 2008 global financial crisis. [ABSTRACT FROM AUTHOR]