The Financialisation of Enterprise Growth: The Mediating Role of Capital Structure in Emerging Markets

Abstract

This study examines the influence of financialisation on enterprise growth in emerging markets comprising of 15 countries in the sub-Saharan Africa including Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Tanzania, Benin, Burkina Faso, Cabo Verde (Cape Verde), The Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast (Côte d'Ivoire), Angola, and Cameroon, with more emphasis on the role of capital structure as a mediation. The study employs panel data from the World Bank Enterprise Survey for 24 sub-Saharan African economies, covering 7,652 large, small, and medium enterprises across the manufacturing and service sectors. The study employs multidimensional indicators of financialisation via factor analysis and then applies Partial Least Squares (PLS) mediation analysis, the Sobel test, and fixed-effects panel regression analyses. The results indicate that financialisation has a negative direct effect on enterprise growth (β = -0.173, p < 0.001), whereas capital structure has a positive and significant influence (β = 0.287, p < 0.001). The analysis of the mediation indicates that capital structure partially mediates the relationship between financialisation and enterprise growth. The findings of this study suggest that, as financialisation may crowd out productive investment, relevant capital structure decisions can channel financial engagement toward enhanced growth outcomes. The study provides important policy insights for regulators and firm managers in emerging markets as they balance financial development with sustainable enterprise growth.