Abstract
M.Com. (Financial Management)
Economic theory suggests that macroeconomic conditions affect an Issuers ability to issue debt or equity capital securities during certain phases of the business cycle. The two main arguments for this are the demand and supply of capital. The demand for capital argument is associated with an increase in equity securities relative to debt during the expansion phase of the business cycle, due to information asymmetries. The supply of capital argument, on the other hand, affects both the availability of funds and shifts investors’ preferences towards safer securities such as debt during tough economic conditions. This study evaluates both the demand and supply of capital for Issuers listed on the JSE by investigating the issuing debt or equity securities to raise capital across the South African business cycle. The findings indicate that a greater number of equity issuances were experienced during the recession phase of the business cycle. The results further highlight that security issuance patterns are not consistent with the flight-to-quality theory, as the shift of investors’ preferences towards safer securities during the deteriorating macroeconomic conditions is not affected.