The Effect of Ownership Type and Corporate Governance on Capital Structure: A South African Perspective

Abstract

This study investigates the effect of ownership type and corporate governance on capital structure decisions of non-financial firms listed on the Johannesburg Stock Exchange (JSE). It examines 109 firms listed over a 23-year period from the year 2000 to 2022. The main research question is whether ownership type and corporate governance factors have an effect on capital structure among firms listed on the JSE or not? The rationale for the study is the lack of empirical evidence in the South African context on the countries diverse ownership types and its effect on key financing decisions. Further, the lack of empirical evidence to support among others, principle 7 of the King IV Code of corporate governance which calls for diversity and board independence, drives this research (BDO, 2016). Ownership type variables employed are institutional, managerial and black shareholding. Corporate governance is examined through the lens of board independence, board size, board gender diversity and CEO duality. Using the fixed effects regression model, the results reveal that institutional and managerial ownership both have a statistically significant inverse relationship with firm leverage. Black ownership is generally found to have no effect on capital structure with the exception of short- term debt, where an inverse relationship exists. Board size and CEO duality are negatively related to capital structure, whereas board independence and board gender diversity are positively related to firm leverage.