Sectoral analysis of capital structure and distribution policies of companies listed on the JSE

Abstract

The objective of this paper was to investigate whether companies listed in four sectors of the Johannesburg Stock Exchange (JSE) treated their financing and distribution policies differently and the interdependence thereof because of sectoral nuances. The research employed a single equation (fixed effect) and a simultaneous equation (3SLS) on a sample of twenty three companies from the basic materials sector, nine companies from the consumer goods sector, sixteen companies from the consumer services sector and twenty one companies from the industrial sector over the period 1990-2017. The empirical findings provide evidence that sectoral nuances played an important role in explaining the treatment of financing and distribution decisions across these four sectors of the JSE. The empirical findings revealed that dividend payments and capital structure are positively significantly correlated with each other in the basic materials sector and consumer service sector, while in the consumer goods sector, capital structure and dividend payment are negatively significantly correlated with each other. Furthermore, the results provided evidence of joint determinants affecting the sectors significantly and differently because of sector nuances. Profitability, size, and assets tangibility were the strongest in explaining the effects of joint determinants within the 3SLS approach. The research proposed that South African managers must consider sector differences when formulating and inter-relating financing decisions to payout decisions.