Stock market development and financing decisions of listed firms in Ghana

Abstract

Godfred A. Bokpin * and Zangina Isshaq

The study examines the impact of stock market development on the financing choices of listed firms in Ghana using data covering the period 1991 to 2005. We regressed debt-equity ratios on market size and market liquidity variables using ARIMA models. Our results suggest that stock market development has not led to the substitution of equity for debt as per propositions by Demiguc-Kunt and Maksimovic (1996). Further, our results suggest market liquidity variables show mixed impact on the debt-equity proportions suggesting that the size of the Ghanaian stock market is not yet significant to impact on financing choices of firms on the exchange. Short-term debt was found to be significantly negatively related to the market size variable and turnover ratio (a measure of market liquidity), but insignificantly positively related to the other measure of market liquidity. Further, research on the openness of the macro- economy, and the entire financial market spectrum’s development could put these results in a proper context.