Abstract
The study adopts a panel regression approach to examine the impact of capital structure on financial performance for mobile operators based in sub-Saharan Africa. It considers eight (8) companies with publicly available annual reports for the seven-year period from 2010 to 2016. Financial performance was measured by return on equity (ROE), return on assets (ROA) and operating profit margin (OM), while capital structure was measured by short-term debt to total assets ratio (STDtTA), long-term debt to total assets ratio (LTDtTA), and total debt to total assets ratio (TDtTA). The total number of subscribers, size as measured by revenue and tangibility were used as the controlling variables.
The study provides evidence of a mixed impact of capital structure on financial performance. STDtTA, LTDtTA and TDtTA had an insignificant impact on ROE and ROA. However, LTDtTA and TDtTA had a negative and significant impact on OM. The number of subscribers had a significant and negative relationship with financial performance, while size (revenue) had a positive one and tangibility showed a mixed impact.
The findings suggest that mobile operators need to focus on other factors that have a direct and stronger influence on financial performance. They should continue to use short-term debt and keep the overall debt position reasonable; while regulators and governments must ensure a stable operating environment to support long-term commitments. Furthermore, operators must develop a profitability mindset and shift their focus from average revenue per user to average profit per user to have a complete value creation picture that considers the costs associated with these revenues. Although size (revenue) matters, operators should be cautious about pursuing subscriber growth at this stage of the industry’s lifecycle. Tangibility either had an insignificant or a significant positive impact on financial performance and operators should own those fixed assets driving their performance but be open to sharing models to enhance efficiency even as they consider 5G investments.
M.Com. (Finance)