Capital Structure Analysis of Exporting and Non-exporting Mauritian Firms: A Pre- and Post-crisis Investigation

Abstract

This chapter probes into the impact of the crisis on the capital structure of Mauritian exporting and non-exporting companies by augmenting the determinants of capital structure through the use of strategic variables like tax, sales and equity. Two metrics of leverage (short-term leverage and long-term leverage) are used and two major periods of time (pre- and post-crisis). The weak impact of the age variable is noted while sales induce the use of short-term leverage but deter the use of long-term leverage. Evidence is found of Mauritian firms contracting longer-term debt during the crisis period to fund their purchases of fixed assets. Size effects reveal that the larger firms in Mauritius tend to make more use of short-term debt rather than long-term debt. Liquidity acts as a major determinant in contracting short-term debt while asset tangibility acts as the major driver in taking on long-term debt. Profitability variable is consistent with static trade-off theory based on a positive relationship between profitability and long-term debt. Policy-wise, is the analysis identifies a need to democratize equity financing to smaller firms to ensure that bankruptcies are well contained during stressful conditions. Impotency of tax under short-term debt signifies no need for fiscal motives to instil a relieving operational manoeuvre to Mauritian companies.