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

  • Samuel Fosu

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    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.

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    File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp13-11.pdf
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    Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 13/11.

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    Date of creation: May 2013
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    Handle: RePEc:lec:leecon:13/11
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    Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK

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