Leverage and stock returns in emerging markets: the case of South Africa

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dc.contributor.authorForichi, Cephas
dc.date.accessioned2014-08-29T06:26:17Z
dc.date.available2014-08-29T06:26:17Z
dc.date.issued2014-08-29
dc.descriptionThesis (M.M. (Finance & Investment))--University of the Witwatersrand, Faculty of Commerce, Law and Management, Graduate School of Business Administration, 2014.en_ZA
dc.description.abstractThis study models leverage-cum-stock returns in emerging markets using South African data. The topic on leverage-cum-stock returns has received much attention from researchers with both empirical and theoretical findings showing mixed results. This study shows that there is a positive relationship between leverage and stock returns. Beta is not the only priceable risk borne by investors, there is a reward also for bearing leverage. High leverage levels entails high asset base, which is an indicator of future growth opportunities. Firms with high asset base, take a gamble by investing heavily in risky but highly rewarding investments. Risky appetite investors are then rewarded with high stock prices leading to high stock returns. It is important to note that highly levered firms are risky. There are costs associated with debt financing, for instance, contractual debt servicing commitments and high chances of default risk. Investors should be compensated for bearing this risk by higher stock prices. Debt-related characteristics are also incorporated in the study to fully model leverage-cum-stock returns. These variables are change in size measured by market capitalization, age of a firm and interest rates. Stock returns are negatively related to age of a firm and interest rates whilst positively related to change in size.en_ZA
dc.identifier.urihttp://hdl.handle.net/10539/15323
dc.language.isoenen_ZA
dc.titleLeverage and stock returns in emerging markets: the case of South Africaen_ZA
dc.typeThesisen_ZA
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