Investigation of the Capital Structure of Companies in Emerging Markets: Evidence from Stock Exchanges

The structure by which firms finances its activities and provides for future financial needs is known as capital structure. This structure is not limited to financing activities but also aimed at optimizing the market value of the firm while being cost effective. Emerging economies around the globe provide suitable markets for firms to develop even though the growth fluctuations and socio-political environment can present a risk for firms. This created the need for an examination of capital structures determinants of companies in emerging markets. The research objectives are to analyse the influence of corporate and macroeconomic variables on financing. Further, the contrast of the pecking order against trade-off to identify the one companies follow on JSE. This study investigates on leverage determinants of all listed non-financial companies on the Johannesburg stock exchange (JSE) from 2011 to 2018. Fourteen explanatory variables made up of firms specific and macroeconomic determinants with short and long-term debt as dependent variables. Data is organised as panel data and fixed effect model is employed to estimate variables. The results present the pecking order as better aligned with short-term debt whereas the trade-off theory aligns with long-term debt. The research concludes by advocating for increased flexibility in capital structures, participation for firms in macroeconomic policies, market player’s orientation towards the benefits of optimum leverage and the ability for economic agents to make better-informed decisions on the market.