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

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.