Theeffect of firm characteristics and economic factors on the capital structure of South African listed industrial firms

[摘要] ENGLISH ABSTRACT: The objective of almost all firms should be to maximise the wealth of shareholders.To achieve this goal, firms should use an optimal combination of debt and equity,which will consequently result in the lowest weighted average cost of capital. Firmstherefore need to determine their target capital structure. This will require firms to beaware of the various factors that can influence their decision-making regardingcapital structure.The effects of firm characteristics and economic factors on capital structures havebeen researched in many countries. Various South African studies have beenconducted on this topic; however, limited research was found where both the firmcharacteristics and economic factors were included in the same study. The majorityof South African studies furthermore either focused on a specific industry on theJohannesburg Securities Exchange Limited (JSE) or their focus was predominantlyon the theory of capital structure applied by South African firms. Most of the studieswere also conducted for the period prior to the demise of apartheid in 1994.Six firm characteristics (profitability, asset structure, liquidity, business risk, growthand size) and three economic factors (interest rate, inflation and economic growth)were identified for this study. The primary objective was to determine the effect offirm characteristics and economic factors on the capital structure of South Africanlisted industrial firms.External databases were used to obtain the data needed for statistical analysis.McGregor BFA (2008) was used to obtain the data required to calculate themeasures for the firm characteristics. This database contains annual standardisedfinancial statements for listed and delisted South African firms. INET-Bridge (2005),Statistica South Africa (2006) and the South African Reserve Bank (SARB) websitewere used to obtain data for the economic factors.The study was conducted for a period of 14 years, from 1995 to 2008. Focusing onlyon those firms that are listed at the end of the selected period would have exposedthe study to a survivorship bias. The census for this study, therefore, included allfirms listed on the industrial sector of the JSE, as well as those firms that delisted during the selected period. Firms had to provide financial data for at least five yearsin order to be included in this study. This requirement was incorporated since thedata set contains cross-sectional and time-series dimensions. The final censusincluded a total of 280 firms (170 listed firms and 110 delisted firms), providing 2 684complete observations for the firm characteristics and 14 complete observations forthe economic factors.The results from this study indicated that the growth of firms and the interest ratemay be the most important firm characteristic and economic factor, respectively, toconsider in financing decisions. The study furthermore indicated that differencesexist between the results obtained for book value leverage and those obtained formarket value leverage. An important observation is that the results are strongerwhen the performance of the variables in the preceding year is included. Not only arethe R² values higher, but the independent variables also reported to be moresignificant when one-year lag variables are included. This may indicate that capitalstructure takes time to adjust. Differences between listed firms and delisted firms arealso evident from the results. Lastly, it appears that the firms included in the studyoverall, lean more towards the pecking order theory than towards the trade-offtheory.Based on these results, it appears that firm characteristics and economic factors dohave an effect on capital structures of listed industrial firms in South Africa. Firmsshould, therefore, take these factors into consideration when making their optimalcapital structure decisions.

[发布机构] Stellenbosch University