It is widely agreed that the emergence of a dynamic business sector is an important ingredient in the process of economic development in poorer countries. In this respect, a crucial issue is to understand how firms in developing countries finance their activities and how changes in economic policy impact on these financing decisions. However, as Prasad, Green and Murinde (2001) point out, very little is known about company financing decisions in developing countries. Even the basic facts are by no means agreed. The seminal studies of Singh and Hamid (1992) and Singh (1995) utilized company accounts data covering the largest companies in selected developing countries within the International Finance Corporation (IFC) database. They found that, in comparison with firms in OECD countries, firms in developing countries generally utilize a greater proportion of external funding than internal funding and a greater proportion of equity finance than debt finance. Given that capital markets in developing countries are invariably less well developed than in the industrial countries, especially for equities, these findings were surprising. However, Cobham and Subramaniam (1998) argued that the findings were in part an artefact of Singh and Hamid’s methodology and sampling, which they claimed biased the statistics in favour of external funding. Concentrating on a single country (India), but using larger samples of companies and a different methodology based on work by Mayer (1988) and by Corbett and Jenkinson (1997), they argued that external and equity funding ratios in India were substantially lower than claimed by Singh and Hamid. A further study of the accounts of large companies in 10 developing countries using the IFC database by Booth, Aivazian, Demirguc-Kunt and Maksimovic (2001; hereafter: BADM) utilized a methodology proposed by Rajan and Zingales (1995), and found that debt ratios varied substantially

across developing countries, but overall were not out of line with comparable data for OECD countries.