The impact of firm size and liquidity on the cost of external finance in Africa

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Periodical article

Title:	The impact of firm size and liquidity on the cost of external finance in Africa
Authors:	Hearn, Bruce Piesse, Jenifer
Year:	2015
Periodical:	South African Journal of Economics (ISSN 0038-2280)
Volume:	83
Issue:	1
Pages:	1-22
Language:	English
Geographic term:	Africa
Subjects:	trade costs financial market economic models
External link:	https://doi.org/10.1111/saje.12062
Abstract:	Established illiquidity measures are constructed for emerging markets in Africa and used to determine which best explains trading costs. Costs of equity are derived from an augmented Capital Asset Pricing Model for a sample of emerging financial markets generally ignored in the literature. These include: South Africa and Namibia, three countries in North Africa and four in Sub-Saharan Africa (SSA), plus London and Paris as examples of integrated markets. Minimum variance portfolios are constructed and asset weights derived, with the sample divided into countries dependent on their legal regime. Portfolio weights are shown to be directly related to well-regulated markets with high standards of corporate governance and disclosure, and firms seeking cost-effective finance from SSA stock markets are at a distinct disadvantage compared with those in Northern Africa, South Africa and, in particular, London and Paris. Bibliogr., notes, ref., sum. [Journal abstract]