Capital structure, product market competition and firm performance: Evidence from South Africa

Samuel Fosu

Research output: Contribution to journalArticlepeer-review

54 Citations (Scopus)
326 Downloads (Pure)

Abstract

This paper investigates the relationship between capital structure and firm performance, paying particular attention to the degree of industry competition. The paper applies a novel measure of competition, the Boone indicator, to the leverage-performance relationship. Using panel data consisting of 257 South African firms over the period 1998–2009, this paper examines the effect of capital structure on firm performance and investigates the extent to which the relationship depends on the level of product market competition. The results suggest that financial leverage has a positive and significant effect on firm performance. It is also found that product market competition enhances the performance effect of leverage. The results are robust to alternative measures of competition and leverage.
Original languageEnglish
Pages (from-to)140-151
JournalThe Quarterly Review of Economics and Finance
Volume53
Issue number2
DOIs
Publication statusPublished - May 2013

Keywords

  • Capital structure
  • Product market competition
  • Firm performance

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