The global financial crisis and the speed of capital structure adjustment: Evidence from South Africa
Journal of Economic and Financial Sciences
| Field | Value | |
| Title | The global financial crisis and the speed of capital structure adjustment: Evidence from South Africa | |
| Creator | Moyo, Vusani Markou, Demetris | |
| Description | 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. | |
| Publisher | AOSIS | |
| Date | 2022-08-25 | |
| Identifier | 10.4102/jef.v15i1.754 | |
| Source | Journal of Economic and Financial Sciences; Vol 15, No 1 (2022); 12 pages 2312-2803 1995-7076 | |
| Language | eng | |
| Relation |
The following web links (URLs) may trigger a file download or direct you to an alternative webpage to gain access to a publication file format of the published article:
https://jefjournal.org.za/index.php/jef/article/view/754/1429
https://jefjournal.org.za/index.php/jef/article/view/754/1430
https://jefjournal.org.za/index.php/jef/article/view/754/1431
https://jefjournal.org.za/index.php/jef/article/view/754/1432
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