Abstract
Capital structure decisions are an important pillar in the creation of shareholder value. Empirical studies have sought to understand factors that determine the capital structure of firms, with mixed findings being reported. Evidently, capital structure determinants studies
focusing on developing economies remain far in-between. Given the emergence of the fourth industrial revolution (4IR), this study investigated capital structure determinants of industrial sector companies listed on the Johannesburg Stock Exchange (JSE). Out of 63 firms in the J257 industrial index, 47 companies were sampled and analysed. The study used total debt ratio (TDR) and debt to equity ratio (DER) as proxies for capital structure. Profitability (ROE), tangibility (TAN), liquidity (LIQ), growth (GRW), size (SIZ), taxation (TAX) and age (AGE)
represented capital structure determinants identified through literature. The study period was from 2009 to 2019. A quantitative approach was followed for all three types of panel regression
models (pooled, random effects and fixed effects).
The findings from the preferred model revealed profitability, tangibility, liquidity, size and age
as determinants of capital structure in the industrial sector listing on the JSE. Furthermore, no
relationship was found between capital structure on the one hand and growth and taxation on
the other. In addition, profitability and size were identified as the two most robust determinants,
being supported by both capital structure proxies, namely debt to equity ratio (DER) and total debt ratio (TDR). The findings further revealed that the trade-off theory, pecking order theory
and agency theory are the prevailing capital structure theories for firms listed in the industrial sector of the JSE.
Key words
Capital Structure; Industrial sector; JSE; 4IR; Debt; Equity; Entity-specific factors; Pecking
order; Trade-off; Agency; Profitability; Tangibility; Liquidity; Growth; Size; Taxation; Age; Panel
data