The capital structure practises of listed firms in South Africa
This study examines the divide between finance theory and practice by analysing thesignificance of the determinants of capital structure choice among 123 listed firms on the JSE, todetermine whether these firms follow the trade-off theory or the pecking-order theory.Data obtained from McGregor’s Bureau of Financial Analysis database was analysed usingstandard multiple regressions, stepwise regressions and ANOVA techniques to test for financingbehaviour. The results indicated that the trade-off model has both cross-sectional and time-seriesexplanatory power for explaining the financing behaviour, while tests on the pecking-ordermodel were weak. The results further revealed a significant positive correlation between debtfinancing and financial distress, and a significant negative correlation between debt financingand the collateral value of assets during the period under study (1995-2005).These findings suggest a divergence between finance theory and practice for JSE listed firms andmanifest conflicting ideologies between finance practices of developed and developingeconomies.
Year of publication: |
2009-11
|
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Authors: | Kasozi, Stephen Jason |
Other Persons: | Ngwenya, M.S. (contributor) |
Subject: | Financial distress | Capital structure | Trade-off theory | Packing-off theory | Corporate finance theory | Target adjustment model | Earning volatility | Financial management | Corporations | Finance | Business enterprises |
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