Effects of Legal and Cultural Attachments onMicrofinance Capital Structure

Abstract

Purpose: The basic intention behind this article is to find that how legal bindings and financial developments sector influence the capital structure of micro finance institutions. Design/methodology/approach: Panel data of 87 countries is used in the analysis from 2004 to 2013 with annual frequency. Random effect is used after Hausman specification. Findings: Result shows that good and prudential legal tradition, may pave way for foreign investments by gaining trust and in this way economic development of country move towards progress. But one variable (depth of credit information) shows inverse relationship with leverage. This is because some time when MFIs fully disclose their financial structures and terms and conditions, they fail to get the investors’ confidence because of gap between investors and MFIs interests. Originality/value: We found limited research work which has been carried out to answer the question that how capital structure respond to the legal traditions and geographical bindings of country.