Effects of credit rating changes on corporate capital structure in South Africa
Journal of Economic and Financial Sciences
| Field | Value | |
| Title | Effects of credit rating changes on corporate capital structure in South Africa | |
| Creator | Bwowa, Culverwell Mouton, Marise De Wet, Milan C. | |
| Description | 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. | |
| Publisher | AOSIS | |
| Date | 2024-04-04 | |
| Identifier | 10.4102/jef.v17i1.866 | |
| Source | Journal of Economic and Financial Sciences; Vol 17, No 1 (2024); 11 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/866/1767
https://jefjournal.org.za/index.php/jef/article/view/866/1768
https://jefjournal.org.za/index.php/jef/article/view/866/1769
https://jefjournal.org.za/index.php/jef/article/view/866/1770
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