Acta Universitatis Danubius. Œconomica, Vol 13, No 6 (2017)

Does Capital Structure impact on the Performance of South African listed Firms?

Matthew Adeolu Abata, Stephen Oseko Migiro, Joseph Olorunfemi Akande, Raredzo Layton

Abstract


Issues surrounding capital structure and performance have been widely debated in literature, yetthere has been no conclusion as to how composition of firm’s capital impact on it performance.Using data on 136 quoted companies on the JSE from January 2000 to December 2014, and with aGMM analysis we explore the impact of capital structure on firm performance metrics in SouthAfrican. The study suggests that total debt to total equity and total debt to total assets are inverselyrelated to both Tobin q and return on assets, while long-term debt to total assets was relatedpositively to both Tobin q and return on assets. On the other hand, total debt to total equity andlong-term debt to total assets were inversely related to return on equity, while total debt to totalassets were positively related to return on equity. It is therefore recommended that firms need todefine their financial objective – either to maximise ROA or ROE. However, an optimal debt/equitymix must be sought, if both financial objectives must be pursued.


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