External equity financing: assessing the interest of construction companies to list at Dar es Salaam stock exchange

This study was done to assess the interest of contractors to seek equity from DSE and financing options of contractors. The reason for the study to be carried out was the presence of low motivation and interest of companies to use the capital market to acquire equity despite of it being the cheapest source of fund. The number of listings in Dar es Salaam stock exchange is very low and there is no even a single listing from construction companies. In this sense the study was done to assess the readiness, awareness, influence of profitability on listing interest and influence of internal framework of the company’s financial needs on the interest to list. The study employed simple random sampling technique in selecting respondents and informants were selected purposively for data generated through questionnaire administered to them. Furthermore secondary data was collected using DSE market annual reports, prospectus and DSE Handbooks. Pecking order theory was tested in this study to determine financing options of construction companies and search for reasons which hold back construction companies to list at DSE. Findings of the study show that more than 81.6% of contractors prefer to use internal generated funds to finance their activities, and if external finance is necessary they prefer debt financing through borrowing from commercial banks and other debt financing sources so they take equity financing as a last resort. Therefore these results comply with pecking order theory. The results show that there is low interest of listing because of stringent listing requirements and high costs associated with listing. Therefore the study is recommending that a review of guidelines and procedures is done to encourage listing from companies in every industry, listing should be emphasized by all stakeholders. The stock market should also take initiatives to emphasize listings.