Original Research

Determinants of choice between equity issuance, equity repurchase and debt issuance of South African companies listed on the Johannesburg Stock Exchange

Mpinda F. Mvita, Leon M. Brummer, John H. Hall
Journal of Economic and Financial Sciences | Vol 15, No 1 | a778 | DOI: https://doi.org/10.4102/jef.v15i1.778 | © 2022 Mpinda F. Mvita, Leon M. Brummer, John H. Hall | This work is licensed under CC Attribution 4.0
Submitted: 23 March 2022 | Published: 23 September 2022

About the author(s)

Mpinda F. Mvita, Department of Financial Management Sciences, Faculty of Economics and Management Sciences, University of Pretoria, Pretoria, South Africa
Leon M. Brummer, Department of Financial Management Sciences, Faculty of Economics and Management Sciences, University of Pretoria, Pretoria, South Africa
John H. Hall, Department of Financial Management Sciences, Faculty of Economics and Management Sciences, University of Pretoria, Pretoria, South Africa


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Abstract

Purpose: The introduction of dual decisions (such as the issue of shares and the issue of debt; the repurchase of shares and the repayment of debt; and share issues and share repurchases) has provided an order of preference of financing decisions influenced by company-specific attributes. The aim of this study is to investigate determinants of choice of South African companies listed on the Johannesburg Stock Exchange (JSE) between different financing decisions.

Design/methodology/approach: Data were obtained from Integrated Real-time Equity System (IRESS), a reliable supplier of financial data. Data of 90 companies were analysed. A logistic regression model (fixed effect) was used, and multinomial logistic regression (fixed effect) was done using a generalised structural equation model.

Findings/results: The research findings highlight the significance of the trade-off theory, the pecking order theory and models based on asymmetric information in elucidating financing decisions in a developing country. The findings extend empirical evidence of determinants of choice between equity issuance, equity repurchase, the no-transaction alternative and debt issuance decisions in South Africa’s emerging economy. The findings also suggest that South African companies listed on the JSE must evaluate company-specific variables and theories that correspond to such variables if they wish to make better financing decisions.

Practical implications: The findings will help corporate decision-makers decide between equity issuance, equity repurchase and debt issuance. The findings will also help shareholders make better investment decisions.

Originality/value: The article investigates the determinants of choice between four financing decisions and the no-transaction alternatives within the same framework.


Keywords

determinants of choice; equity issuance; equity repurchase; debt issuance; generalised structural equation

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