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

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dc.contributor.advisor Erasmus, P. D. en_ZA
dc.contributor.author De Vries, Annalien en_ZA
dc.contributor.other University of Stellenbosch. Faculty of Economic and Management Sciences. Dept. of Business Management.
dc.date.accessioned 2010-11-10T10:04:57Z en_ZA
dc.date.accessioned 2010-12-15T10:16:56Z
dc.date.available 2010-11-10T10:04:57Z en_ZA
dc.date.available 2010-12-15T10:16:56Z
dc.date.issued 2010-12 en_ZA
dc.identifier.uri http://hdl.handle.net/10019.1/5163
dc.description Thesis (MComm (Business Management))--University of Stellenbosch, 2010. en_ZA
dc.description.abstract 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. Firms therefore need to determine their target capital structure. This will require firms to be aware of the various factors that can influence their decision-making regarding capital structure. The effects of firm characteristics and economic factors on capital structures have been researched in many countries. Various South African studies have been conducted on this topic; however, limited research was found where both the firm characteristics and economic factors were included in the same study. The majority of South African studies furthermore either focused on a specific industry on the Johannesburg Securities Exchange Limited (JSE) or their focus was predominantly on the theory of capital structure applied by South African firms. Most of the studies were also conducted for the period prior to the demise of apartheid in 1994. Six firm characteristics (profitability, asset structure, liquidity, business risk, growth and size) and three economic factors (interest rate, inflation and economic growth) were identified for this study. The primary objective was to determine the effect of firm characteristics and economic factors on the capital structure of South African listed 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 the measures for the firm characteristics. This database contains annual standardised financial statements for listed and delisted South African firms. INET-Bridge (2005), Statistica South Africa (2006) and the South African Reserve Bank (SARB) website were used to obtain data for the economic factors. The study was conducted for a period of 14 years, from 1995 to 2008. Focusing only on those firms that are listed at the end of the selected period would have exposed the study to a survivorship bias. The census for this study, therefore, included all firms 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 years in order to be included in this study. This requirement was incorporated since the data set contains cross-sectional and time-series dimensions. The final census included a total of 280 firms (170 listed firms and 110 delisted firms), providing 2 684 complete observations for the firm characteristics and 14 complete observations for the economic factors. The results from this study indicated that the growth of firms and the interest rate may be the most important firm characteristic and economic factor, respectively, to consider in financing decisions. The study furthermore indicated that differences exist between the results obtained for book value leverage and those obtained for market value leverage. An important observation is that the results are stronger when the performance of the variables in the preceding year is included. Not only are the R² values higher, but the independent variables also reported to be more significant when one-year lag variables are included. This may indicate that capital structure takes time to adjust. Differences between listed firms and delisted firms are also evident from the results. Lastly, it appears that the firms included in the study overall, lean more towards the pecking order theory than towards the trade-off theory. Based on these results, it appears that firm characteristics and economic factors do have an effect on capital structures of listed industrial firms in South Africa. Firms should, therefore, take these factors into consideration when making their optimal capital structure decisions. en_ZA
dc.description.abstract AFRIKAANSE OPSOMMING: Dit behoort die doelwit van byna alle firmas te wees om die welvaart van aandeelhouers maksimaal te verhoog. Om hierdie doelwit te bereik, moet firmas 'n optimale kombinasie van geleende kapitaal en ekwiteit gebruik, wat gevolglik sal lei tot die laagste geweegde gemiddelde koste van kapitaal. Firmas moet dus hulle beoogde kapitaalstruktuur bepaal. Dit sal van firmas vereis word om bewus te wees van die verskillende faktore wat 'n invloed op hul kapitaalstruktuur-besluite kan hê. Die uitwerking van 'n firma se eienskappe en ekonomiese faktore op kapitaalstruktuur is al in baie lande nagevors. Verskeie Suid-Afrikaanse studies is in dié verband gedoen, maar daar is beperkte navorsing waar beide firma eienskappe en ekonomiese faktore in dieselfde studie ingesluit is. Die meerderheid Suid- Afrikaanse studies het gefokus op 'n spesifieke nywerheid op die Johannesburg Sekuriteite-beurs Beperk (JSE) of die hooffokus was op die teorie van kapitaalstruktuur soos deur Suid-Afrikaanse firmas toegepas. Die meeste van die studies is ook gedoen vir die tydperk voor die afskaffing van apartheid in 1994. Ses eienskappe van firmas (winsgewendheid, batestruktuur, likiditeit, sakerisiko, groei en grootte) en drie ekonomiese faktore (rentekoers, inflasie en ekonomiese groei) is vir die studie geïdentifiseer. Die primêre doelwit was om die uitwerking van firmas se eienskappe en ekonomiese faktore op kapitaalstrukture van genoteerde nywerheidsfirmas in Suid-Afrika te bepaal. Eksterne databasisse is gebruik om die data wat vir statistiese ontleding nodig was, te bekom. McGregor BFA (2008) is gebruik om die nodige data vir die berekening van die maatstawwe vir die firma se eienskappe te bekom. Hierdie databasis bevat jaarlikse, gestandaardiseerde finansiële state vir genoteerde en gedenoteerde Suid- Afrikaanse firmas. INET-Bridge (2005), Statistica South Africa (2006) en die Suid- Afrikaanse Reserwebank (SARB) se webtuiste is gebruik om die data vir die ekonomiese faktore te bekom. Die studie is uitgevoer vir 'n tydperk van 14 jaar, van 1995 tot 2008. Deur slegs op daardie firmas wat aan die einde van die navorsingstydperk genoteer was, te fokus sou die studie aan 'n oorlewingsydigheid blootstel. Die sensus vir die studie het, dus, genoteerde firmas op die nywerheidsektor van die JSE asook daardie firmas wat gedurende die geselekteerde tydperk gedenoteer is, ingesluit. Firmas moes finansiële data vir ten minste vyf jaar verskaf om by die studie ingesluit te word. Hierdie vereiste is gestel aangesien die datastel beide deursnee- en tydreeksdimensies bevat het. Die finale sensus het 'n totaal van 280 firmas (170 genoteerde firmas en 110 gedenoteerde firmas) ingesluit, waaruit 2 684 volledige waarnemings vir die firma se eienskappe en 14 volledige waarnemings vir die ekonomiese faktore gemaak kon word. Die resultate van hierdie studie dui moontlik daarop dat die groei van firmas en die rentekoers, onderskeidelik die belangrikste eienskap van 'n firma en ekonomiese faktor is om te oorweeg by finansieringsbesluite. Die studie dui verder daarop dat die resultate, onderskeidelik verkry vir boekwaarde-hefboomwerking en markwaardehefboomwerking, verskil. 'n Belangrike opmerking is dat die resultate sterker is wanneer die prestasie van die veranderlikes in die voorafgaande jaar ingesluit word. Nie alleen is die R²-waardes hoër nie, maar die onafhanklike veranderlikes blyk ook om meer beduidend te wees wanneer een-jaar-vertraagde veranderlikes ingesluit word. Verskille tussen genoteerde firmas en gedenoteerde firmas is ook duidelik uit die resultate van die studie. Laastens wil dit blyk dat die firmas in die studie oor die algemeen meer leun na die pikorde-teorie ("pecking order theory") as na die kompromis-teorie ("trade-off theory"). Op grond van hierdie resultate wil dit voorkom asof 'n firma se eienskappe en die ekonomiese faktore wel 'n uitwerking het op die kapitaalstrukture van genoteerde nywerheidsfirmas in Suid-Afrika. Firmas moet dus hierdie faktore in ag neem wanneer hulle besluite neem rakende hul besluite oor optimale kapitaalstruktuur. af_ZA
dc.language.iso en_ZA en_ZA
dc.publisher Stellenbosch : University of Stellenbosch
dc.subject Capital structure -- South Africa en_ZA
dc.subject Business enterprises -- South Africa -- Finance en_ZA
dc.subject Capital investments -- South Africa en_ZA
dc.subject Dissertations -- Business management en_ZA
dc.subject Theses -- Business management en_ZA
dc.subject.other Business Management en_ZA
dc.title The effect of firm characteristics and economic factors on the capital structure of South African listed industrial firms en_ZA
dc.type Thesis en_ZA
dc.rights.holder University of Stellenbosch


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