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

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  • Samuel Fosu

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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.

Suggested Citation

  • Samuel Fosu, 2013. "Capital Structure, Product Market Competition and Firm Performance: Evidence from South Africa," Discussion Papers in Economics 13/11, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:13/11
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    File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp13-11.pdf
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    Cited by:

    1. Mukhoti, Sujay & Guhathakurta, Kousik, 2015. "Product market performance and capital structure: A Hierarchical Bayesian semi-parametric panel regression model," MPRA Paper 62517, University Library of Munich, Germany.

    More about this item

    Keywords

    Capital structure; Product market competition; Firm performance;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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