CONCLUSION AND POLICY IMPLICATIONS
According to the conventional corporate finance literature, in a perfect capital market, the financing decisions of firms should be irrelevant. The main implication of such theory is that given that there are no perfect capital markets, the financing decisions of firms do matter and should have significant consequences on the performance of these firms.
There were two major objectives of this study. Firstly, the study attempted to examine the financing pattern of non-financial firms in the small open economy open economy of Jamaica. The second aim was to determine whether, the capital structures derived - which are these consequences of these financing decisions - impact on the performance of these firms.
In terms of the methodology employed, the first approach was to analyze the information gleaned from the financial statements of the firms listed on the Jamaica Stock Exchange. The intention was to determine the types of financing as well as the trends. Having understood how these firms went about making their financing decision, the next step was to use Instrumental Variable (IV) techniques on panel data, to examine the nature of the relationship between the capital structure and the performance of these firms.
The first major finding of this study was is that there is a heavy reliance on the use of internally generated financing by firms in Jamaica. Between 1999 and 2008, the internal finance to net assets ratio was 1.81. Internal finance also proved to be a most popular source of financing across all industries. In particular, it was found to be greatest in the retail industry (2.89) and tourism (2.87) industries and lowest in the category represen...
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...s, Jamaica, 2002) only 38 are listed on the Jamaica Stock Exchange. In spite of some progress, much remains to be done to develop and fully integrate the capital market in the Caribbean.
To increase the demand for finance from the capital markets, the macroeconomic and incentive framework must stimulate entrepreneurship and the growth and restructuring of enterprises. This would require more pro-market activist policies, with the emphasis both on market forces and Government prodding. In addition, micro, small and medium-sized firms must be encouraged and provided with incentives to open up their firms to new investors and ideas that could foster innovation and firm growth and competitiveness. For instance, means for a group of, small and medium-sized firms to access a pool of capital market finance to reduce costs and increase the uptake should be considered.
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