Original Research

The global financial crisis and the speed of capital structure adjustment: Evidence from South Africa

Vusani Moyo, Demetris Markou
Journal of Economic and Financial Sciences | Vol 15, No 1 | a754 | DOI: https://doi.org/10.4102/jef.v15i1.754 | © 2022 Vusani Moyo, Demetris Markou | This work is licensed under CC Attribution 4.0
Submitted: 21 January 2022 | Published: 25 August 2022

About the author(s)

Vusani Moyo, Department of Accountancy, Faculty of Management, Commerce and Law, University of Venda, Thohoyandou, South Africa
Demetris Markou, Department of Statistics and Economics, School of Business and Management, University of Central Lancashire, Larnaka, Cyprus

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Orientation: The 2007–2008 global financial crisis (GFC) represented a negative economic shock that financially constrained most firms globally.

Research purpose: This study investigated the impact of the 2007–2008 GFC on firms’ speed of adjustment (SOA) towards target leverage and whether this is a good descriptor of corporate financing for Johannesburg Stock Exchange (JSE)-listed nonfinancial firms.

Motivation for the study: There is limited evidence, if any, on how the GFC affected firms’ SOA.

Research approach/design and method: This study used panel data drawn from 104 nonfinancial firms listed on the JSE and the partial adjustment model fitted with the random-effects tobit estimator (RE tobit).

Main findings: The study firstly documents that JSE-listed nonfinancial firms had positive SOAs prior to, during and post the 2007–2008 GFC. Secondly, firms’ SOA decreased during the financial crisis period, meaning that a global negative economic shock reduces the SOA of all JSE-listed nonfinancial firms. Thirdly, financially constrained firms readily eliminate their target leverage deviation spreads, as they have a persistently higher SOA than financially unconstrained firms. Lastly, the SOA of financially unconstrained firms improved after the 2007–2008 GFC.

Contributions/value-add: The dynamic trade-off theory is a good descriptor of the financing behaviour of JSE-listed non-financial firms. A negative economic shock reduces the firms’ SOAs.

Practical/managerial implications: Managers should therefore maintain capital buffers in the form of cash reserves and lines of credit to reduce the impact of a negative economic shock on a firms’ SOAs.


dynamic trade-off theory; speed of adjustment; random effects tobit; financially constrained; global financial crisis; target capital structure


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