n Management Dynamics : Journal of the Southern African Institute for Management Scientists - The influence of firm characteristics and economic factors on capital structures : a comparison between book value and market value leverage

Volume 21, Issue 3
  • ISSN : 1019-567X



The goal of maximising shareholders' wealth implies that financial managers must structure a firm's financing sources in an optimal manner. Various factors can have an effect on these financing decisions. The objective of this study was to investigate the effect of firm characteristics and economic factors on the capital structures of South African listed industrial firms. Panel data methodology was applied to a sample of 280 firms, covering the period from 1995 to 2008. The results indicate that some of the identified firm characteristics and economic factors do have an effect on capital structure formation. The combined effect of these factors is even stronger when their values for the preceding year are included. Management therefore appears to take some of the factors into consideration when making capital structure decisions. Furthermore, capital structure adjustments are, in some cases, introduced over time by incorporating both the current and past values of these factors.

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