The Impact of Firm Size and Liquidity on the Cost of External Finance in Africa

31 Pages Posted: 23 Mar 2009 Last revised: 20 Nov 2012

See all articles by Bruce Allen Hearn

Bruce Allen Hearn

University of Southampton

Jenifer Piesse

University of Stellbosch; King's College London - Department of Management

Date Written: March 21, 2009


Established illiquidity measures are constructed for emerging markets in Africa and used to determine which best explain trading costs. Costs of equity are derived from an augmented CAPM for a sample of emerging financial markets generally ignored in the literature. These include: South Africa and Namibia, three countries in North Africa and four in SSA, plus London and Paris as examples of integrated markets. Minimum variance portfolios are constructed and asset weights derived, with the sample divided into countries dependent on their legal regime. Portfolio weights are shown to be directly related to well-regulated markets with high standards of corporate governance and disclosure and firms seeking cost effective finance from SSA stock markets are at a distinct disadvantage compared with those in Northern Africa, South Africa, and in particular, London and Paris.

Keywords: Liquidity, Portfolio Diversification, Emerging Financial Markets, Africa

JEL Classification: G11, G12, G15, O55

Suggested Citation

Hearn, Bruce Allen and Piesse, Jenifer, The Impact of Firm Size and Liquidity on the Cost of External Finance in Africa (March 21, 2009). Available at SSRN: or

Bruce Allen Hearn (Contact Author)

University of Southampton ( email )

University Rd.
Southampton SO17 1BJ, Hampshire SO17 1LP
United Kingdom

Jenifer Piesse

University of Stellbosch

Stellenbosch, Western Cape
South Africa

King's College London - Department of Management ( email )

Virginia Woolf Building
22 Kingsway
London, England WC2B 6NR
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics