Corporate Capital of Domestic and Foreign Firms in Africa – An Empirical Review

NWAFOR, Michael C and ONWUKA, Ifeanyi Onuka (2018) Corporate Capital of Domestic and Foreign Firms in Africa – An Empirical Review. IOSR Journal of Business and Management (IOSR-JBM), 19 (2). 01-10. ISSN 2278-487X

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The study evaluated the existence and nature of systematic competition for corporate capital between local and foreign firms operating in major African economies. The study is motivated by the debate that foreign firms have easier access to corporate capital than domestic firms, and that the problem in the global financial market might push foreign firms to rely more on domestic financial markets for funds. To achieve the goal of this study, both microeconomic and macroeconomic data were sourced from diverse sources – including the World Bank's Global Development Indicators' database and the individual annual financial reports of firms. The data generated a total of 351 firms based in 11 African countries over a period 2009 to 2014. The results show that the average ratio of total liabilities to total assets is slightly higher among the listed foreign firms (at 48.8 percent) than among the listed domestic firms (47.9 percent), although the differences does not appear significant at conventional levels (t-statistic = 0.601; prob.>t = 0.548). For the whole sample also, it is shown that foreign firms have higher long-term liabilities to total asset ratio than domestic firms, and that the difference is significant at 10 percent level. Whereas the average long-term debt ratio among foreign firms stands at 12.1 percent, for domestic firms, the level is 10.7 percent (t-statistic = 1.751; prob.>t = 0.080). In none of the four sub regions, though, does the difference in the long-term debts ratio significantly differ between domestic and foreign firms. Consistent with the statistical evidence, the descriptive results seem to suggest that the survey evidence reported by the World Bank that in Africa, foreign firms are more profitable, larger, more valued in terms of investments in fixed assets, and older than domestic firms is not true. However, as shown in this report, such differences, with the exception of asset tangibility and age, are not very significant at conventional levels. This suggests that the major source of competition for corporate finance in Africa may be on the extent of collateral value and the reputation that arises from firm age. Keywords: Corporate Capital, Corporate Competition, Domestic Firms, Foreign Firms

Item Type: Article
Subjects: H Social Sciences > H Social Sciences (General)
L Education > L Education (General)
Divisions: Faculty of Management and Social Sciences
Depositing User: GOUNI ICT
Date Deposited: 06 Jun 2018 04:49
Last Modified: 06 Jun 2018 04:49

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