Company determinants of capital structure on the JSE Ltd and the influence of the 2008 financial crisis

Abstract

The optimal capital structure and value of a company is in constant evolution, taking into account both the external and internal environment. This study examines company-related determinants of capital structure and investigates whether the 2008 financial crisis exerted any significant influence on the capital structure and the identified determinants in a sample of top 40 JSE Ltd listed companies in South Africa. A panel regression model was applied to identify the most significant capital structure determinants and variance in them. Panel regression accounts for cross-sectional data and time series data simultaneously. It was found that the 2008 financial crisis did not exert a significant difference on the capital structures of the sample companies. The most significant company-related determinants of capital structure before the 2008 financial crisis were risk, tangibility and profitability. Risk and tangibility had a stronger influence on capital structure after the 2008 financial crisis but profitability became insignificant. The significant factors should be closely monitored to detect change in capital structure and the valuation of a company.