Influence of External Sources of Funding on Corporate Financial Policies in a Pre-Financial Crisis Period in South Africa—A Case Study of Mauritian Enterprises

Chakeel Prayagsing, Kheswar Jankee


A number of scholars have been motivated to study the manner to which firms adjust their corporate finance strategies in light of the availability and easiness of accessing external sources of funding. Till recently, researchers have also been interested to analyse the external factors that allow firms to relax their fixed budget and the consequent impact on corporate strategies. These mainly include alterations in the composition of their funding and the second round effects on other corporate decisions such as on investment projects and their dividend policies. External financing can be assessed both from a policy perspective, i.e., via financial liberalisation policies, as well as other development in the financial sector such as availability of alternative bases of finance, both from banks and non-banks. It will thus be pertinent to examine the impact of FL policies as well as availability of financial resources on the capital structure of Mauritian firms and their investment decisions in a post financial liberalization period. A judicious investigation is undertaken and the empirical soundness of our different formulations tested with the techniques of panel data and GMM estimates. We compare and contrast the results in the 7 different sectors notably banking, insurance, leasing, hotel, oil, retail/distributive trade and the construction industry. For a better analysis, the full sample of firms is divided into several subsamples as follows: top 100 companies, firms in group-structure, those which are not in group structures, local firms, international firms, firms with good banking ties, those with good and poor corporate governance, listed and unlisted firms. By employing different econometric investment models, we found that all indices of FL, including the index of money market liberalisation, index of capital account liberalisation and overall financial liberalisation index have do not have any influence on private investment behaviour. In contract, higher amount of money in circulation, bank credit, leasing activities and subsidised financing from the Development bank have a positive impact on private investment expenditures. Development in the financial sector in terms of credit facilities offered by insurance companies, venture capitals and the stock market activities have not been effective in inducing firms to increase their investment portfolios.

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