South African Capital Structure Decisions: A Survey of Listed Companies

ABSTRACT

This paper explores the factors that influence capital structure decisions in South Africa from the perspective of the Chief Financial Officer (CFO). The results of a survey of 33 CFOs of JSE listed companies find that South African CFOs are equally likely to follow the Pecking Order and Static Trade-Off theories. However, small companies are more likely to follow the Pecking Order theory while large companies are more likely to follow the Static Trade-Off theory. In addition, the results show that South African companies are more likely to follow the Static Trade-Off theory than companies in other emerging countries.

KEYWORDS:

• Capital
• cost of capital
• corporate finance
• South Africa
• survey

Notes

1. Open-ended questions were not included in the survey so as to purposely narrow the research focus and aid efficient analysis.

2. The other companies were unwilling to provide CFO contact details or did not respond to subsequent requests.

3. Some of the JSE sectors were grouped together to protect the anonymity of companies in sparsely populated sectors. The respondents were therefore given a choice of five sectors.

4. For the purpose of this study, large firms are defined as firms with revenue greater than R1 billion.

5. A debt issue will increase the earnings per share by increasing the amount of capital available to earn a return while not increasing the number of shares.