The impact of the global financial crisis on the capital structure of JSE listed companies in South Africa

Abstract

The aim of this thesis is to determine whether the Global Financial Crisis had an impact on the capital structure choices of South African firms listed on the Johannesburg Stock Exchange (JSE) as well as to investigate whether their capital structure determinants differed before, during and after the crisis. 171 firms listed on the JSE across 9 different sectors were chosen for this study. The study used panel data over a 9-year period. Data for the three-year period 2004 to 2006 constituted the ‘before the Global Financial Crisis period’; data for the three-year period 2007 to 2009 constituted the ‘Global Financial Crisis period’ and data for the three-year period 2010 to 2012 constituted the ‘after the Global Financial Crisis period’. A panel regression model was used, and three different measures of leverage were tested. The findings indicate that the crisis had a significant impact on the capital structure of JSE listed firms. Firms were found to have lower levels of debt in the period before the crisis when compared with the crisis period. Furthermore, no significant change was found in firm leverage after the crisis, meaning that debt levels remained at similar levels after the crisis when compared with the period during the crisis. When looking at the determinants of the sampled firm’s capital structures, profitability, firm size and asset tangibility were found to have increased in significance in either the during, after-crisis period or both these periods, when compared with the before period. Growth opportunities were also found to be insignificant during the crisis but significant in both the before and after periods. Thus, it was these determinants that provided the mechanism through which JSE listed firms increased their leverage during the crisis. Ultimately, the results of this study point towards firms increasing leverage levels in times of economic crisis and financial distress