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The Impact of Debt Financing on Financial Performance: Evidence from Retail Firms Listed on the JSE

Author

Listed:
  • Lenny Mamaro

    (University of South Africa)

  • Tsholofelo Legotlo

    (University of South Africa)

Abstract

Objectives: The study investigates the impact of debt financing on financial performance of retail firms listed on the Johannesburg Stock Exchange for a period 2010–2019. The extant literature shows contradicting findings on the financing structure for retail firms. The fixed effects was applied using the financial performance ratios, return on equity is used as the profitability measure and is the dependent variable, whereas lagged return on equity, long term debt to total asset, total debt to total asset are used as independent variables, while size, sales growth are used as control variables. The lagged return on equity, total debt to total asset and growth in sales strongly influence financial performance of return on equity with high statistically significance of 1% level, whereas long-term debt to total asset and firm size negatively influence financial performance with a statistically significance of 1% and 5%, respectively. The study will retail managers with decision-making when financing their assets to increase profit. The study contributes to the literature and inform all stakeholders in the retail sector to make a profitable form of financing and the results are limited to South Africa retail firms.

Suggested Citation

  • Lenny Mamaro & Tsholofelo Legotlo, 2020. "The Impact of Debt Financing on Financial Performance: Evidence from Retail Firms Listed on the JSE," The Journal of Accounting and Management, Danubius University of Galati, issue 3(10), pages 23-33, December.
    • Handle: RePEc:dug:jaccma:y:2020:i:3:p:23-33
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    File URL: https://dj.univ-danubius.ro/index.php/JAM/article/view/318/667
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