Bank Market Structure, Property Rights and Financial Freedom Effects on Capital Structure: Evidence from Asian Developing Countries

Abstract

The paper considers direct and indirect impacts of bank concentration, property rights and financial freedom on corporate leverage in 12 Asian developing countries from 2000 to 2013. Our result shows that bank concentration has a directly negative relationship with leverage in these countries but this relationship becomes revertible when bank concentration reaches a given point. Highly concentrated banking market structure favors for profitable firms to obtain debts and is considered as a solution against strong private property rights proxy. A strong private property rights decreases amount of debts financed by banking system and leads firms to prefer using internal funds to obtain protection advantages for newly established assets. Our results indicate stronger degree of financial freedom encourages firms borrow more and supports for profitable firms. Strong degree of financial freedom also reduces the importance of collapse coverage in accessing debts whilst weaker degree of financial freedom leads to an increase of using trade credit as a substitute for bank loans.