Original Research

Effects of credit rating changes on corporate capital structure in South Africa

Culverwell Bwowa, Marise Mouton, Milan C. De Wet
Journal of Economic and Financial Sciences | Vol 17, No 1 | a866 | DOI: https://doi.org/10.4102/jef.v17i1.866 | © 2024 Culverwell Bwowa, Marise Mouton, Milan C. De Wet | This work is licensed under CC Attribution 4.0
Submitted: 03 March 2023 | Published: 04 April 2024

About the author(s)

Culverwell Bwowa, School of Accounting, Faculty of Economics and Financial Sciences, University of Johannesburg, Johannesburg, South Africa
Marise Mouton, School of Accounting, College of Business and Economics, University of Johannesburg, Johannesburg, South Africa
Milan C. De Wet, School of Accounting, College of Business and Economics, University of Johannesburg, Johannesburg, South Africa


Orientation: The changes in credit ratings for corporates have a great impact on corporate funding decisions, costs and capital structures.

Research purpose: The study aimed to identify the relationship between credit ratings and capital structures in emerging economies such as South Africa.

Motivation for study: Investors, financial managers, regulatory authorities and financial analysts focus on the credit quality of companies as measured by credit ratings in making financing and investing choices. The credit rating is a significant communication tool, and businesses consider it crucial when deciding on capital structure. An ideal capital structure of a company is one that reduces its relative cost of capital by striking a balance between the capital structure proportions to enhance value.

Research approach, design and method: A systematic and quantitative approach using semi-annual data from 2011 to 2020 sourced from EquityRT and the JSE.

Main findings: Credit ratings have a positive and material impact on the capital structure decisions of South Africa’s top 40 companies. Thus, a higher debt-to-asset ratio is encouraged when the credit score improves, and a downgrade is more likely to be followed by a capital reduction behaviour.

Practical/managerial implications: Investors, managers and regulators can use the findings of this study for financial decision-making purposes, anticipating changes in future corporate capital structures and monitoring funding opportunities as well as balancing debt to equity in the capital construction of an organisation.

Contribution/value-add: The evidence generated by the study presented that credit rating changes influence capital structure.


capital structure; credit ratings; rating outlook; total debt to total assets; investment grade; speculative grade

JEL Codes

G24: Investment Banking • Venture Capital • Brokerage • Ratings and Ratings Agencies; G32: Financing Policy • Financial Risk and Risk Management • Capital and Ownership Structure • Value of Firms • Goodwill

Sustainable Development Goal

Goal 8: Decent work and economic growth


Total abstract views: 900
Total article views: 508

Crossref Citations

No related citations found.