Capital Structure, Product Market Competition and Firm Performance: Evidence from South Africa

Samuel Fosu ()

No 13/11, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

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 to 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.

Keywords: Capital structure; Product market competition; Firm performance (search for similar items in EconPapers)
JEL-codes: G32 L11 L25 (search for similar items in EconPapers)
Date: 2013-05
New Economics Papers: this item is included in nep-afr, nep-bec, nep-com, nep-eff and nep-hme
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (52)

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