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 representing other industries (0.49). The use of internally generated funding was far greater than all sources of external finance. This finding indicated that firm found it cheaper to use the funds that they generated for their investment and operational purposes. It was also an indication of the underdeveloped nature of the capital markets in Jamaica. Internal Finance was also found to have a significant and positive impact on the performance of firms in Jamaica found to have
The second major finding of this study was that short-term financing had a negative impact on the performance of firms in Jamaica. The result ran counter to the findings in the empirical literature. However, with the context of Jamaica, this finding is not necessarily counterintuitive. Short- term finance is extremely costly in Jamaica and this is not necessarily the case in countries where it was found to have a positive effect. The third major finding of this study was that long-term debt had no explanatory power over the performance of firms in Jamaica. These results spoke to the underdeveloped nature of the capital markets in Jamaica. Firms are not able to access cheaper funds by active participating in active stock and debt markets.