An examination of the effect of the global financial crisis on the link between capital structure and firm performance
type: CreativeWork
description: The study examines the effect of the global financial crisis on the link between capital structure and firm performance using panel data of the South African nonfinancial firms that were listed on the Johannesburg stock exchange (JSE) for the period between 2007 and 2012. The analysis is done by splitting the entire period into the during and post financial crisis and then combining the two datasets after controlling for the period type to examine if the crisis period had an impact on the link between capital structure and firm performance. The relationship is examined based on two prominent capital structure theories, that is, the trade-off theory and perking order theory. The perking order theory assumes that a negative link exists whereas the trade-off theory assumes that a positive relationship exists. ROA is used as a proxy for firm performance. The ratios of total liabilities, long term liabilities and short-term liabilities to total assets are used as proxies for capital structure. The study uses firm size, liquidity, and tangibility as control variables. The main findings based on the link between capital structure and firm performance show that there was an insignificant negative relationship between firm performance and all proxies of debt, that is, total debt, long term debt and short-term debt during the global financial crisis period while a strong statistically significant negative relationship existed between firm performance and both total debt and long-term debt after the global financial crisis and even after controlling for the period type. The relationship was much stronger with long term debt than with total debt. In contrast, the findings of this study show that there was no significant relationship between short term debt and firm performance during and after the global financial crisis and even after controlling for the period type. The findings of a negative relationship between firm performance and both total debt and long-term debt is cons…
abstract: The study examines the effect of the global financial crisis on the link between capital structure and firm performance using panel data of the South African nonfinancial firms that were listed on the Johannesburg stock exchange (JSE) for the period between 2007 and 2012. The analysis is done by splitting the entire period into the during and post financial crisis and then combining the two datasets after controlling for the period type to examine if the crisis period had an impact on the link between capital structure and firm performance. The relationship is examined based on two prominent capital structure theories, that is, the trade-off theory and perking order theory. The perking order theory assumes that a negative link exists whereas the trade-off theory assumes that a positive relationship exists. ROA is used as a proxy for firm performance. The ratios of total liabilities, long term liabilities and short-term liabilities to total assets are used as proxies for capital structure. The study uses firm size, liquidity, and tangibility as control variables. The main findings based on the link between capital structure and firm performance show that there was an insignificant negative relationship between firm performance and all proxies of debt, that is, total debt, long term debt and short-term debt during the global financial crisis period while a strong statistically significant negative relationship existed between firm performance and both total debt and long-term debt after the global financial crisis and even after controlling for the period type. The relationship was much stronger with long term debt than with total debt. In contrast, the findings of this study show that there was no significant relationship between short term debt and firm performance during and after the global financial crisis and even after controlling for the period type. The findings of a negative relationship between firm performance and both total debt and long-term debt is cons…
author: Malekanyo, Reoagile
keywords: Finance and Tax
date published: 2024
date modified: 2026-07-22T22:23:06Z
provider: University of Cape Town
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: Department of Finance and Tax

PropertyValue
property ID: Handle
value: http://hdl.handle.net/11427/40297