Effects of credit rating changes on corporate capital structure in South Africa
| Autor: | Culverwell Bwowa, Marise Mouton, Milan C. De Wet |
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| Jazyk: | angličtina |
| Rok vydání: | 2024 |
| Předmět: | |
| Zdroj: | Journal of Economic and Financial Sciences, Vol 17, Iss 1, Pp e1-e11 (2024) |
| Druh dokumentu: | article |
| ISSN: | 1995-7076 2312-2803 |
| DOI: | 10.4102/jef.v17i1.866 |
| Popis: | Orientation: The changes in credit ratings for corporates have a great impact on corporate funding decisions, costs and capital structures. Research purpose: The study aimed to identify the relationship between credit ratings and capital structures in emerging economies such as South Africa. Motivation for study: Investors, financial managers, regulatory authorities and financial analysts focus on the credit quality of companies as measured by credit ratings in making financing and investing choices. The credit rating is a significant communication tool, and businesses consider it crucial when deciding on capital structure. An ideal capital structure of a company is one that reduces its relative cost of capital by striking a balance between the capital structure proportions to enhance value. Research approach, design and method: A systematic and quantitative approach using semi-annual data from 2011 to 2020 sourced from EquityRT and the JSE. Main findings: Credit ratings have a positive and material impact on the capital structure decisions of South Africa’s top 40 companies. Thus, a higher debt-to-asset ratio is encouraged when the credit score improves, and a downgrade is more likely to be followed by a capital reduction behaviour. Practical/managerial implications: Investors, managers and regulators can use the findings of this study for financial decision-making purposes, anticipating changes in future corporate capital structures and monitoring funding opportunities as well as balancing debt to equity in the capital construction of an organisation. Contribution/value-add: The evidence generated by the study presented that credit rating changes influence capital structure. |
| Databáze: | Directory of Open Access Journals |
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