Tendai Gwatidzo

Dynamics in capital structure determinants in South Africa

Purpose - The purpose of this paper is to use a dynamic model to investigate capital structure determinants for 178 firms listed on the Johannesburg Stock Exchange for the period 1998-2008. The sample of firms is also used to examine the cost and speed of adjustment towards a target debt ratio. Design/methodology/approach - A target adjustment model is estimated using a generalized method of moments technique to examine the cost and speed of adjustment towards a target debt ratio. The determinants of target capital structure for South African listed firms are also examined. Findings - The results show that South African firms adjust relatively fast towards a target leverage level. It is also found that asset tangibility, growth, size and risk are positively related to leverage, while profitability and tax are negatively related to leverage. The results also suggest that capital structure decisions of South African listed firms follow both the pecking order and trade-off theories of capital structure. Research limitations/implications - The sample chosen focused on listed firms, thus the results cannot credibly be generalized to all South African firms (listed and unlisted). Also, whilst a lot can be gleaned from the results, they may not be readily applicable to firms in other African countries. Originality/value - The issue of dynamic adjustment towards a target or optimal debt ratio has not received sufficient attention in developing economies. Using data from an emerging economy, this paper attempts to fill this gap in the literature. A target adjustment model is estimated using a generalized method of moments technique.

Determinants of bribery for infrastructure provision in East African manufacturing firms

Existing empirical evidence suggests that corruption in infrastructure is prevalent in developing countries. Using data on manufacturing firms in Kenya, Uganda and Tanzania, this study investigates what type of firms are asked to pay bribes by public officials in order to access infrastructure. We find that firms in Tanzania and Uganda face more severe problems with infrastructure than those in Kenya. Despite facing fewer infrastructure constraints, we find that Kenyan firms are more likely to be asked for bribes than Ugandan and Tanzanian firms; suggesting that paying bribes could be enabling Kenyan firms to access limited infrastructure. We also find that larger firms are less likely to be asked for bribes, and that an efficient court system reduces the propensity of public officials to ask for bribes. In addition, firms located in capital cities are more likely to be asked for bribe payments. These findings provide policy makers with specific targets to aim for in the design of policies meant to address corruption in infrastructure provision.