Dynamism, Capital Structure, and Performance in a Sub-Saharan Economy: Extending the Institutional Difference Hypothesis

Joseph Ofori-Dankwa () and Scott D. Julian ()
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Joseph Ofori-Dankwa: Department of Management and Marketing, College of Business and Management, Saginaw Valley State University, University Center, Michigan 48710
Scott D. Julian: Department of Management and Information Systems, School of Business Administration, Wayne State University, Detroit, Michigan 48202

Organization Science, 2013, vol. 24, issue 5, 1422-1438

Abstract: Extant research examining the capital structure–performance relationship has been undertaken primarily in developed economies. These studies integrate agency theory considerations with the contingency perspective and suggest a positive interaction between sector dynamism, equity, and performance. Our study extends this research stream by examining the capital structure–performance link in a sub-Saharan economy, an underresearched but economically emerging region. Using logic undergirding a substantial stream of institutional theory-based studies that we term the institutional difference hypothesis , we argue that the implications of the capital structure–performance relationship are contingent on the extent of national-level institutional underdevelopment. Taking into account institutional differences between developed economies and those in the sub-Saharan region, we hypothesize a negative interaction between sector dynamism, equity, and firm performance in sub-Sahara. Using longitudinal data from Ghanaian corporations for 1996–1999, we find substantial support for our hypothesis. Contrary to findings from developed economies, sector dynamism negatively moderates the firm equity–performance relationship: a strongly positive effect of equity on performance in stable sectors becomes slightly negative in highly dynamic ones. We unpack the implications of these results for theory and research.

Keywords: institutional theory; agency theory; institutional difference hypothesis; sub-Saharan Africa; sector dynamism; capital structure (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ororsc:v:24:y:2013:i:5:p:1422-1438

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