Determinants of Capital Structure: Does Growth Opportunity Matter?

Ndonwabile Zimasa Mabandla () and Godfrey Marozva
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Ndonwabile Zimasa Mabandla: Department of Finance, Risk Management, and Banking, 1 Preller Street Muckleneuk, Pretoria 0002, South Africa
Godfrey Marozva: Department of Finance, Risk Management, and Banking, 1 Preller Street Muckleneuk, Pretoria 0002, South Africa

JRFM, 2025, vol. 18, issue 7, 1-14

Abstract: This study explores the impact of growth opportunities on the capital structure of South African banks, utilising panel data from registered banking institutions covering the period from 2014 to 2023. While a substantial body of literature examines the relationship between growth prospects and corporate leverage, limited attention has been paid to this interaction within the banking sector, particularly in emerging economies. By employing the dynamic panel Generalised Method of Moments (GMM) estimator to address endogeneity concerns, the analysis reveals a statistically significant positive relationship between growth opportunities and both the total debt ratio (TDR) and the long-term debt ratio (LTDR). In contrast, a significant negative association is found between growth opportunities and the short-term debt ratio (STDR). The findings suggest that banks with stronger growth prospects are more inclined to utilise long-term financing, possibly reflecting shareholder preferences for institutions with favourable future outlooks and lower refinancing risks. These results highlight the importance of aligning capital structure decisions with an institution’s growth trajectory, while indicating that this relationship shifts depending on the maturity of the debt considered. This study contributes to the existing literature by contextualising capital structure decisions within the framework of growth opportunities. Structure theory within the context of the banking sector in a developing market offers practical insights for strategic financial planning and regulatory policy.

Keywords: capital structure; growth opportunities; trade-off theory; packing order theory (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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