Financial sector development in Egypt and its effect on corporate finance

الملخص EN

financial sector development and its structural affected financial decision of the firm.

The firms reliance on internal funds for investment when the financial sector and its structure are not develop.

Concerning to Egyptian financial sector like most other developing countries, was extremely regulated in 1980s.

Since the 1991, Egypt has embarked on economic reform and structural adjustment program.

The aim was to restore macroeconomic stability, restructuring the economy and enable it to face the challenge of global integration of financial market.

The reforms of the financial sector were reflected in the removal of most regulation affected the banking sector, consistent with the logic of market liberalization .

Similarly, several reforms allowed the development of other capital markets such as insurance, bond, and stock markets to complement its other efforts.

The financial structure have several changes since the economic reform and the liberalization policy ,the indicators of size, activity and efficiency improved .the stock market started to take relative importance since the mid of nineties but, the efficiency of the banking sector and stock market compared by the average of the world is very low.

Concerning to the other financial institutions their size and activity increased but still relatively small comparing with the average of the world.

.Therefore we can classify Egyptian financial structure as underdeveloped.

According to q theory of investment, in the absences of financial restriction, firm investment depends on the (q ratio) or the q value of the firm , which equal to the market value of the firm ,when the firm faces constraints on external finance its investment will be determine by its internal resources .

The degree of leverage of the firm ( debt to capital ratio) also depend on the development of the financial sector and its structure.

When the firm face imperfect financial market this ratio decline and deter the availability of external finance, even after controlling the q value.

The results for the first model test whether, as a result of financial development experienced in 1990s, firms are less depended on their internal resources and balance sheet composition and more responsive to Their Tobin's q -value, by applied the common coefficient approach, reveal that the constant term is significant at a high level of significant, the investment does not significantly depend on the firms q-value at 95%but we can accept it at 90% , so it is week significant ,but the investment is driven positively and highly significant by cash flow and negatively by its level of indebtedness.

This conclusion However, does not apply equally to all firms , when we applied the approach of cross-section specific coefficient, little firms are response to it's q- value, such as Eastern company, Baken ,Cement of Alexandria and Cairo for housing.

The estimated results of the second model after we add the macro financial variable.

The private credit ratio has an independent and significantly effect on the firm investment and also the effect of macro level appears to work through micro economic channels, that is by making the firms investment more responsive to the q- value of the firm and less constrained on the use of external finance.

The variable (cap) of stock market capitalization has a negative singe and insignificant .

we can conclude that although the development of the financial sector especially the banking sector ,the firms still realize on their internal finance.