This paper addresses to the question: How do firms in emerging economy choose their capital structure? Thai firms' capital structures were empirically investigated to find their patterns over the period of the country's financial liberalisation and economic success. Also, the attributes of the firms' capital-structure-determinants were tested and analysed, including managers' financial policy practice. Data used in this study were derived from the 221 Thai manufacturing firms listed on the Stock Exchange of Thailand for the period 1990 to 1995 and from a questionnaire survey of the chief financial officers. The results show that Thai firms have a distinct preference for debt; in general, debt has been used to finance more than half of their assets during 1990 to 1995. Firms employ more short-term debt than long-term. The share of long-term debt has, however, increased in the recent years. As regards the capital structure determinants, a positive relationship exists between debt ratio on the one hand and tangible assets, growth, and size, on the other hand. The negative relationship is found between debt ratio and profitability, interest coverage, debt-service coverage and the firm's uniqueness (intangible). Thai managers consider survival as the main consideration in making financing decisions. The second important consideration is maintaining the firm's liquidity. They do not worry too much about the external factors. They put more faith in their firms' growth prospects and competitiveness and are governed by their past experience. Thai managers are rather reluctant in making public offer of debt or equity. They think that Thai capital market is slow and rising funds consumes a lot of time. It is hoped that the financial deregulation, the establishment of a credit rating agency and the capital market reforms will result in financial restructuring of the Thai firms.
