Financial structure and valuation of companies listed on an emerging market: case of the BRVM

Abstract

The objective of this study is to analyze the role of the financial structure in the valuation of companies listed on the West African market. The sample considered consists of 24 companies listed on the BRVM observed during the period 2006-2015. We analyzed the signaling effect of the financial structure on the market value using a two-step dynamic model. The signaling effect is captured by the effect of a change in the financial structure on a change in market value.

Our results reveal that there is no significant link between the financial structure and the stock price as market value. On the other hand, a 1% increase in debt and equity respectively cause 1.174% and 0.012% increase of market value measured by the TOBIN’s Q. These results suggest that a high level of debt and equity is perceived as a good signal by investors on BRVM. It the same for the distributed dividends variable. On the other hand, a change in the level of tax and turnover growth rate remained significant regardless of the measure of the market value, this result suggests that these factors, and the past market value of the company, can be used as signals on BRVM. In addition, the political crisis experienced by Ivory Coast had a negative impact on the market value of BRVM companies.

In addition, we can conclude that the signaling effect of the financial structure on company’s value in the case of BRVM depends on the indicators of financial structure and market value’s measures. More explicitly, our results reveal that a possibility of signaling by the financial structure especially debt can be considered on BRVM.

Keywords: Financial structure, financial market, emerging markets, valuation, BRVM, stock market transactions.

JEL classification: G32

Paper Type: Empirical Research