THE IMPACT OF ECONOMIC UNCERTAINTY ON A COMPANY’S CAPITAL STRUCTURE

Abstract

Economic uncertainty directly influences debt-or-equity financing decisions. This study examines how economic uncertainty in Mongolia affects the capital structure of companies operating in the light and heavy industrial sectors. Financial data spanning 10 years from 18 Tier I and Tier II companies listed on the Mongolian Stock Exchange, along with Mongolia’s economic uncertainty data from the World Uncertainty Index /WUI/, were collected, processed, and estimated using a Fixed Effects /FE/ model. The results indicate that companies operating in both sectors tend to favour debt financing over equity financing during periods of economic uncertainty, and – depending on the nature of their operations – tend to prefer long-term debt over short-term debt financing.