3. Electronic Theses and Dissertations (ETDs) - All submissions

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    The relationship between capital structure and financial performance of South Africa’s schedule 2 state owned entities
    (2018) Marotholi, Tsholofelo
    In South Africa, State-Owned Entities (SOEs) are used as instruments to advance government’s developmental objectives, which are aimed at eliminating unemployment, poverty and inequality. In doing so, these public entities are expected to remain financial sustainable over the long-term, without posing a risk to the national resources. To address this dual mandate, public entities require an optimal capital structure mix (equity and debt) to fund long-term assets that will generate sufficient funds to allow the public entities to remain financially sustainable over the long term. Various empirical studies have indicated that there is some kind of association between capital structure and financial performance. This study attempts to explore the relationship that exists between capital structure and the financial performance of Schedule 2 SOEs. Understanding the effect that the capital structure has on the performance of SOEs could assist public entities and/or the government to arrive at the appropriate level of capital structure that would enable these SOEs to pursue their respective mandates effectively. To explore this relationship, a sample of 18 SOEs from a population of 21 Schedule 2 public entities, was used. The data from the study was extracted from the audited annual reports of the respective entities, covering the period from 2005 to 2015. The dynamic General Method of Moments (GMM) model was applied to the data employed in this research. The results of the study produced mixed results. Capital structure measures long-term debt to total assets is positively and significantly related to return on assets (ROA), but negatively and significantly associated to return on equity (ROE), net profit margin (NPM) and operating margin (OM). With respect to short-term debt to total assets (STDA), there is a significantly negative relationship between ROA and OM. However, STDA is positively and significantly related to ROE and NPM. Furthermore, the study results are in line with the trade-off theory and traditional theory on capital structure, which advocate that there are benefits to the usage of debt. However, excessive application of debt could erode the benefits associated with its usage. Therefore, the management of SOEs will need to continuously rebalance the combination of equity and debt within the entities as they undertake different projects that will satisfy government’s developmental objectives, thus ensuring that the firms’ capital structure is at its optimal level.
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    Determinants of capital structure of listed firms in the South African manufacturing industry
    (2018) Mabotja, Khomotso
    This study sought to investigate the impact of firm specific variables and corporate governance variables on capital structure of manufacturing firms listed in Johannesburg Stock Exchange (JSE) for the period 2004-2017. This resulted in a panel of 74 out of 108. Return on asset (ROA), size, asset tangibility, growth, tax and business risk, board size, non-executive and Chief Executive Officer (CEO)’s tenure effects on capital structure decisions were analysed. Correlation analysis reveal no strong co-movement among the regressors, while Unit root tests using Augmented Dickey-Fuller and Fisher-type test showed the errors have non-zero mean and non-persistent over time. Dynamic GMM applied provide significant coefficients using lagged values of the dependent variable as instrument. Results reveal that firms follow both pecking order and trade-off capital structure theories. There is positive relationship between lagged leverage and ROA, size, and tax. Asset tangibility and growth have a negative relationship and positive relationship respectively with the lagged leverage of the firms. Growth rate of the sector was slow and less risky, indicating freedom to choose whatever financing method. However, these variables only became significant with the introduction of the lagged leverage variable. This means that any debt-equity decision critically relies on the previous debt equity levels.
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    The relationship between macroeconomic variables and capital structure decisions: empirical evidence from Botswana and Mauritius
    (2019) Chimbwete, Ngodya
    The relationship between the impact of macroeconomic variables and capital structure decisions has been extensively researched through the years and across many countries. Despite the extensive research done, these studies have not been conclusive. This research paper studies this relationship of the impact of selected macroeconomic variables on the capital structure of companies in Botswana and Mauritius. These countries were chosen due to their differences in economic structure; Botswana has been seen to be a resource-based economy whilst Mauritius has been seen to been diversified economy. Furthermore, Stock Market Capitalization (MC) and Credit Growth in each country, were used as proxies for capital structure decisions. Results were both in support of and contrary to the theory and therefore arrived at the conclusion that because Botswana and Mauritius are subjected different economic dynamics (resource-based and diversified economies) it can be inferred that firms in the various countries will need to adjust their capital structures depending on how these variables interact within their respective economies.
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    A framework for an optimized capital structure for state-owned natural monopolies
    (2017) Nxumalo, Khulekani Sydwell
    This study empirically examines whether the capital structure for natural monopolies (parastatals) dynamically responds to macroeconomic conditions. It further examines whether the balance sheet channel theory holds for this industry sample. The study adopts a double sampling approach from the population of water boards in South Africa (SA), which raise their capital in open financial markets. A quantitative research approach is adopted with a descriptive design to achieve relevant deductions. Panel techniques are used in the descriptive design for the regressions. The study finds that leverage partly dynamically responds to macroeconomic conditions. Furthermore, the evidence shows that inflation is an exception that has no significant relationship with leverage. The balance sheet channel theory is found to hold for water boards that access capital in open financial markets. Specifically, empirical evidence shows that changes in the interest rate have a delayed impact on the companies’ characteristics, including capital structure. Overall, our evidence suggests that water boards in SA need to consider the benefits of linking financial policies to the business cycle and that their policies should consider the delayed effect of interest rate changes.
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    Human capital and entrepreneurial success in the context of South African informal economy
    (2017) Ntuli, Tshikani Derrick
    Existing literature indicates a positive relationship between human capital and entrepreneurial capital. This has been a dominant supported view for ages. Among other scholars, Unger, et al. (2011); Davidson and Honig (2003); still uphold the view that human capital influence entrepreneurial success to a certain magnitude. However, contemporary studies argue that although the relationship has been demonstrated for decades, some assumptions to the perception should be questioned as the world evolves over time. Unger (2011); Martin, et al. (2013), and more other scholars identify the modification of the traditional assumptions. In terms of these scholars, uncertainty remains over the magnitude of this relationship and the circumstances under which human capital is more or less strongly associated with entrepreneurial success. Consideration of fragmentation in today's study with regard to conceptualization of human capital, the choice of success indicators, the context of study provide some critical challenges to the traditional perception of consistent relationships. All these aspects provide some open gaps to be filled by research. Oostebreek, et al. (2010) sees a questionable relationship between human capital factors and entrepreneurial success, which in terms of Unger, et al. (2011) give rise for the consideration of a moderator approach to study the effects of human capital on business success in order to efficiently determine whether the stated relationships exist or not. Resourced-Based Theory (RBT) was used as theoretical framework to this study. Three main constructs and five sub-constructs have been used to formulate the conceptual model from which three hypotheses were developed and tested. Empirical studies was conducted among selected informal traders in Limpopo Province – focusing in three districts. 257 unregistered small business owners were potential respondents. A quantitative methodology was employed to collect and analyse data through survey research design. The Structural Equation Modelling (SEM) along with AMOS 23, SPSS were used as descriptive statistical tools to test the validity of the hypotheses. Both theoretical and applied implications will assist the knowledge-base of researches. Policymakers will also find the implications useful in industrial policymaking. This study provides recommendations which may assist further research and other related enquiries of academic nature.
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    Capital structure under different macroeconomic conditions: evidence from South Africa
    (2016) Mokuoane, Moeketsi
    The empirical literature provides conflicting assessments about how firms choose their capital structure and how macroeconomic variables influence capital structure decision making. There has been a minimal research of the impact of macroeconomic conditions on the adjustment of capital structure towards target, specifically in the context of South Africa. This study employs a sample of South African companies listed on JSE Limited stock exchange from 2000 - 2014 to investigate: (1) the relationship between corporate leverage and firm characteristics as well as macroeconomic variables; (2) the impact of extreme capital market frictions on capital structure decisions; and (3) the relation between macroeconomic conditions and capital structure adjustment speed using an integrated partial adjustment dynamic capital structure model. The research results find evidence that certain firm characteristics and macroeconomic factors have pronounced influence on the capital structure of the sample of listed companies. The empirical results are compared to previous international evidence from developed markets and are in line with the international evidence. Results show that profitability, size and tangibility are significant determinants of firms’ capital structure in the pre- extreme capital market friction periods. The rand crisis of 2001 – 2002 and the global financial crisis period of 2007 – 2009 are considered extreme capital market friction periods. The findings highlights that profitability and size have a different relation to leverage during these extreme capital market friction periods. The extreme capital market friction dummy is significant which means that capital supply conditions are also amongst important factors that need to be considered while determining the financing mix during periods where the supply of capital is disrupted. The findings highlight that demand-side and supply-side factors need to be considered in firms’ financial decision making processes, especially during periods where there is extreme capital markets friction. The research also finds evidence supporting the prediction of theoretical framework that firms adjust to target leverage slower in good states than in bad states, where states are defined by real GDP growth rate and inflation rate.
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