The Financial Performance and Financial Leverage of Retail Listed Firms in South Africa
Keywords:
Retail firms, financial performance, leverageAbstract
The study investigates the relationship between financial performance and dividend payout of Retail firms over eleven years from 2010 to 2020. The rationale behind this call is that a lot of research on the relationship between financial leverage and dividend payout originate from developed countries. It is on this background that this study tries to investigate the relationship between firm growth and dividend payout from a South African perspective. The quantitative research design was employed to investigate the influence of financial performance on financial leverage of Listed Retail firms using panel data analyses. Secondary data collection consists of annual financial reports of Retail firms for a period from 2010 to 2020 which consist of 170 observations. The empirical results show that financial performance is positively associated with a financial leverage of listed Retail firms, while other variables (financial leverage, firm growth) positively significant influence financial performance. Liquidity is positively but insignificantly influence financial performance while firm size is negatively insignificantly affect financial performance. The study is limited to the Retail sector only which means cannot generalise the overall findings to other sectors of the economy. These results might benefit researchers, managers and investors and provide a guideline to the relevant literature. . In South Africa, there is an insufficient amount of evidence on the relationship between financial leverage and financial performance. In South Africa, as a developing country, there is a need for more comparable studies investigating this phenomenon.
References
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Abubakar, A. (2017). Effects of financial leverage on financial performance of non-financial quoted companies in Nigeria. FUDMA Economic and Development Review (FEDER), 1(1), 37-53.
Ahmad, N., Salman, A., & Shamsi, A. (2015). Impact of financial leverage on firms’ profitability: An investigation from cement sector of Pakistan. Research Journal of Finance and Accounting, 6(7), 2222-1697.
Ahmed, F., Awais, I., & Kashif, M. (2018). Financial Leverage and Firms’ Performance: Empirical Evidence from KSE-100 Index. Etikonomi: Jurnal Ekonomi. Vol. 17 (1): 45 – 56. doi: http//dx.doi.org/10.15408/etk.v17i1.6102.
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Amidu, M. (2007). Determinants of capital structure of banks in Ghana: an empirical approach. Baltic journal of management.
Azhar, K. A., & Ahmed, N. (2019). Relationship between firm size and profitability: investigation from textile sector of Pakistan. International Journal of Information, Business and Management, 11(2), 62-73.
Bagchi, T. P. (2013). Working capital and profitability—Establishing the causality. The Journal of Accounting and Management, 3(2).
Basri, H. (2019). Assessing the determinants of dividend policy of the government-owned companies in Indonesia. International Journal of Law and Management, 61(5/6), 530-541.
Chesang, D., & Ayuma, C. O. (2016). Effect of Financial Leverage on Profitability of Listed Agricultural Firms at the Nairobi Securities Exchange. International Journal of Economics, Commerce and Management, 4(12), 445-493.
Chun, H. K. L., Cudia, C. P., Papa, T. D. M., Tahilramani, R. S., & Tan, A. R. (2020). Effect of Moderating Variables: Financial Leverage and Dividend Payout of Publicly-Listed Property Sector of the Philippines. DLSU Business & Economics Review, 29(2), 58-70.
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Dahmash, F. N. (2015). Size effect on company profitability: Evidence from Jordan. International Journal of Business and Management, 10(2), 58.
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Kartikasari, D., & Merianti, M. (2016). The effect of leverage and firm size to profitability of public manufacturing companies in Indonesia. International Journal of Economics and Financial Issues, 6(2), 409-413.
Kouser, R., Bano, T., Azeem, M., & Ul Hassan, M. (2012). Inter-relationship between profitability, growth and size: A case of non-financial companies from Pakistan. Pakistan Journal of Commerce and Social Sciences (PJCSS), 6(2), 405-419.
Kraus, A., & Litzenberger, R. H. (1973). A state-preference model of optimal financial leverage. The journal of finance, 28(4), 911-922.
Kumar, N., & Kaur, K. (2016). Firm size and profitability in Indian automobile industry: An analysis. Pacific Business Review International, 8(7), 69-78.
Labhane, N. B., & Das, R. C. (2015). Determinants of dividend payout ratio: evidence from Indian companies. Business and Economic Research, 5(2), 217-241.
Le, T. P. V., & Phan, T. B. N. (2017). Capital structure and firm performance: Empirical evidence from a small transition country. Research in international business and finance, 42, 710-726.
Makori, D. M. (2017). short-term financing decisions and financial performance of non-financial firms listed at the Nairobi Securities Exchange, Kenya (Doctoral dissertation, PHD Thesis, Kenyatta University).
Mwangi, L. W., Makau, M. S., & Kosimbei, G. (2014). Relationship between capital structure and performance of non-financial companies listed in the Nairobi Securities Exchange, Kenya. Global Journal of Contemporary Research in Accounting, Auditing and Business Ethics, 1(2), 72-90.
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of financial economics, 5(2), 147-175.
Myers, S. C. (1984). Capital structure puzzle. NBER Working Paper, (w1393).
Myers, S. C. (2001). Capital structure. Journal of Economic perspectives, 15(2), 81-102.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187-221.
Nduka, A. J., & Ucheahara, O. F. (2016). Financing Corporate Organization for Efficient Performance in Nigeria: Equity or Debt Option. African Journal of Education, Science and Technology, April, 3(2), 196-204.
Onaolapo, A. A., Kajola, S. O., & Nwidobie, M. B. (2015). Determinants of capital structure: A study of Nigerian quoted companies. methodology, 7(23).
Padmini, L.S. & Ratnadi, N.M.D. (2020). The Effect of Free Cash Flow, Dividend Policy, and Financial Leverage on Earnings Management. American Journal of Humanities and Social Sciences Research (AJHSSR), 4(1), 195-201.
Raheel, T. & Shah, F. M. (2015). A study that identify the relationship between the financial leverage and firms profitability: Empirical evidence from oil and gas companies of Pakistan listed in KSE. International Journal of Scientific & Engineering Research, 6(11), 80-88.
Rehman, S. S. F. U. (2013). Relationship between financial leverage and financial performance: Empirical evidence of listed sugar companies of Pakistan. Global Journal of Management and Business Research.
Rahman, M. M., Saima, F. N., & Jahan, K. (2020). The Impact of Financial Leverage on Firm's Profitability: An Empirical Evidence from Listed Textile Firms of Bangladesh. The Journal of Business Economics and Environmental Studies, 10(2), 23-31.
Razaq, I. T., & Akinlo, A. E. (2017). Interrelationship between Size, growth and Profitability of Non-Financial Firms in Nigeria. European Journal of Business and Management, 9(7), 76-86.
Samo, A.H. & Murad, H. (2019). Impact of liquidity and financial leverage on firm’s profitability-an empirical analysis of the textile industry of Pakistan. Research Journal of Textile and Apparel, 23(4), 295-305.
Samosir, F. C. (2018). Effect of cash conversion cycle, firm size, and firm age to profitability. Journal of Applied Accounting and Taxation, 3(1), 50-57.
Sibindi, A. B., & Makina, D. (2018). Are the determinants of banks’ and insurers’ capital structures homogeneous? Evidence using South African data. Cogent Economics & Finance, 6(1), 1519899.
Spence, M. (1973). Job market signaling, Quarterly Journal of Economics, 87(3), 355-374.
Sugiastuti, R.H., Dzulkirom, M., & Rahayu, S.M. (2018). Effect of profitability, leverage toward dividend policy and firm value. RJOAS, 8(80), 88-95.
Tamimi M., Takhtaei N., & Malchi, F. (2014). The relationship between firm age and financial leverage with dividend policy. Asian Journal of Finance and Accounting, 6(2), 53-63.
Titman, S. (2015). Financial management: Principles and applications. Pearson Australia
Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19.
Yusof, Y. & Ismail, S. (2016). Determinants of dividend policy of public listed companies in Malaysia. Review of International Business and Strategy, 26(1), 88-89.
Abata-Ebire, B. D., Adebowale, J. A., & Ojokuku, B. Y. (2018). Achieving sustainable development goals (SDGs) in Nigeria: the roles of libraries. International journal of applied technologies in library and information management, 4(2), 89-95.
Abubakar, A. (2017). Effects of financial leverage on financial performance of non-financial quoted companies in Nigeria. FUDMA Economic and Development Review (FEDER), 1(1), 37-53.
Ahmad, N., Salman, A., & Shamsi, A. (2015). Impact of financial leverage on firms’ profitability: An investigation from cement sector of Pakistan. Research Journal of Finance and Accounting, 6(7), 2222-1697.
Ahmed, F., Awais, I., & Kashif, M. (2018). Financial Leverage and Firms’ Performance: Empirical Evidence from KSE-100 Index. Etikonomi: Jurnal Ekonomi. Vol. 17 (1): 45 – 56. doi: http//dx.doi.org/10.15408/etk.v17i1.6102.
Akhalumeh, P. & Ogunkuade, Z. (2021). Ownership structure, financial leverage and dividend policies: Empirical evidence from Nigerian Listed firms. Journal of Educational Realities (JERA), 11(1), 1-12.
Amidu, M. (2007). Determinants of capital structure of banks in Ghana: an empirical approach. Baltic journal of management.
Azhar, K. A., & Ahmed, N. (2019). Relationship between firm size and profitability: investigation from textile sector of Pakistan. International Journal of Information, Business and Management, 11(2), 62-73.
Bagchi, T. P. (2013). Working capital and profitability—Establishing the causality. The Journal of Accounting and Management, 3(2).
Basri, H. (2019). Assessing the determinants of dividend policy of the government-owned companies in Indonesia. International Journal of Law and Management, 61(5/6), 530-541.
Chesang, D., & Ayuma, C. O. (2016). Effect of Financial Leverage on Profitability of Listed Agricultural Firms at the Nairobi Securities Exchange. International Journal of Economics, Commerce and Management, 4(12), 445-493.
Chun, H. K. L., Cudia, C. P., Papa, T. D. M., Tahilramani, R. S., & Tan, A. R. (2020). Effect of Moderating Variables: Financial Leverage and Dividend Payout of Publicly-Listed Property Sector of the Philippines. DLSU Business & Economics Review, 29(2), 58-70.
Coban, S. (2014). The interaction between firm growth and profitability: evidence from Turkish (listed) manufacturing firms. Bilgi Ekonomisi ve Yönetimi Dergisi, 9(2), 73-82.
Dahmash, F. N. (2015). Size effect on company profitability: Evidence from Jordan. International Journal of Business and Management, 10(2), 58.
Dalci, I. (2018). Impact of financial leverage on profitability of listed manufacturing firms in China. Pacific Accounting Review. 30(4), 410-432. http://dx.doi.org/10.1108/PAR-01-2018-0008
Donaldson, G. (1961) Corporate Debt Capacity, Harvard University Press, Cambridge, MA.
Gangil, R. & Nathani, N. (2018). Determinants of dividend policy: A study of FMCG sector in India. Journal of Business and Management, 20(2), 40-46.
Gill, A., Biger, N., & Tibrewala, R. (2010). Determinants of dividend payout ratios: evidence from United States. The Open Business Journal, 3(1).
Gordon. D 1961. Corporate Debt Capacity: A Study of Corporate Debt Policy and the Determination of Corporate Debt Capacity. Boston: Division of Research, Graduate School of Business Administration, Harvard University.
Jaara, B., Alashhab T., & Jaara, O.O. (2018). The determinants of dividend policy for non-financial companies in Jordan. International Journal of Economics and Financial Issues, 8(2), 198-209.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360.
Kanakriyah, R. (2020). Dividend policy and companies' financial performance. The Journal of Asian Finance, Economics, and Business, 7(10), 531-541.
Kartikasari, D., & Merianti, M. (2016). The effect of leverage and firm size to profitability of public manufacturing companies in Indonesia. International Journal of Economics and Financial Issues, 6(2), 409-413.
Kouser, R., Bano, T., Azeem, M., & Ul Hassan, M. (2012). Inter-relationship between profitability, growth and size: A case of non-financial companies from Pakistan. Pakistan Journal of Commerce and Social Sciences (PJCSS), 6(2), 405-419.
Kraus, A., & Litzenberger, R. H. (1973). A state-preference model of optimal financial leverage. The journal of finance, 28(4), 911-922.
Kumar, N., & Kaur, K. (2016). Firm size and profitability in Indian automobile industry: An analysis. Pacific Business Review International, 8(7), 69-78.
Labhane, N. B., & Das, R. C. (2015). Determinants of dividend payout ratio: evidence from Indian companies. Business and Economic Research, 5(2), 217-241.
Le, T. P. V., & Phan, T. B. N. (2017). Capital structure and firm performance: Empirical evidence from a small transition country. Research in international business and finance, 42, 710-726.
Makori, D. M. (2017). short-term financing decisions and financial performance of non-financial firms listed at the Nairobi Securities Exchange, Kenya (Doctoral dissertation, PHD Thesis, Kenyatta University).
Mwangi, L. W., Makau, M. S., & Kosimbei, G. (2014). Relationship between capital structure and performance of non-financial companies listed in the Nairobi Securities Exchange, Kenya. Global Journal of Contemporary Research in Accounting, Auditing and Business Ethics, 1(2), 72-90.
Myers, S. C. (1977). Determinants of corporate borrowing. Journal of financial economics, 5(2), 147-175.
Myers, S. C. (1984). Capital structure puzzle. NBER Working Paper, (w1393).
Myers, S. C. (2001). Capital structure. Journal of Economic perspectives, 15(2), 81-102.
Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of financial economics, 13(2), 187-221.
Nduka, A. J., & Ucheahara, O. F. (2016). Financing Corporate Organization for Efficient Performance in Nigeria: Equity or Debt Option. African Journal of Education, Science and Technology, April, 3(2), 196-204.
Onaolapo, A. A., Kajola, S. O., & Nwidobie, M. B. (2015). Determinants of capital structure: A study of Nigerian quoted companies. methodology, 7(23).
Padmini, L.S. & Ratnadi, N.M.D. (2020). The Effect of Free Cash Flow, Dividend Policy, and Financial Leverage on Earnings Management. American Journal of Humanities and Social Sciences Research (AJHSSR), 4(1), 195-201.
Raheel, T. & Shah, F. M. (2015). A study that identify the relationship between the financial leverage and firms profitability: Empirical evidence from oil and gas companies of Pakistan listed in KSE. International Journal of Scientific & Engineering Research, 6(11), 80-88.
Rehman, S. S. F. U. (2013). Relationship between financial leverage and financial performance: Empirical evidence of listed sugar companies of Pakistan. Global Journal of Management and Business Research.
Rahman, M. M., Saima, F. N., & Jahan, K. (2020). The Impact of Financial Leverage on Firm's Profitability: An Empirical Evidence from Listed Textile Firms of Bangladesh. The Journal of Business Economics and Environmental Studies, 10(2), 23-31.
Razaq, I. T., & Akinlo, A. E. (2017). Interrelationship between Size, growth and Profitability of Non-Financial Firms in Nigeria. European Journal of Business and Management, 9(7), 76-86.
Samo, A.H. & Murad, H. (2019). Impact of liquidity and financial leverage on firm’s profitability-an empirical analysis of the textile industry of Pakistan. Research Journal of Textile and Apparel, 23(4), 295-305.
Samosir, F. C. (2018). Effect of cash conversion cycle, firm size, and firm age to profitability. Journal of Applied Accounting and Taxation, 3(1), 50-57.
Sibindi, A. B., & Makina, D. (2018). Are the determinants of banks’ and insurers’ capital structures homogeneous? Evidence using South African data. Cogent Economics & Finance, 6(1), 1519899.
Spence, M. (1973). Job market signaling, Quarterly Journal of Economics, 87(3), 355-374.
Sugiastuti, R.H., Dzulkirom, M., & Rahayu, S.M. (2018). Effect of profitability, leverage toward dividend policy and firm value. RJOAS, 8(80), 88-95.
Tamimi M., Takhtaei N., & Malchi, F. (2014). The relationship between firm age and financial leverage with dividend policy. Asian Journal of Finance and Accounting, 6(2), 53-63.
Titman, S. (2015). Financial management: Principles and applications. Pearson Australia
Titman, S., & Wessels, R. (1988). The determinants of capital structure choice. The Journal of Finance, 43(1), 1-19.
Yusof, Y. & Ismail, S. (2016). Determinants of dividend policy of public listed companies in Malaysia. Review of International Business and Strategy, 26(1), 88-89.
Published
2021-10-26
How to Cite
Mamaro, L. P., & Legotlo, T. G. (2021). The Financial Performance and Financial Leverage of Retail Listed Firms in South Africa: Array. Acta Universitatis Danubius. Œconomica, 17(6). Retrieved from https://dj.univ-danubius.ro/index.php/AUDOE/article/view/1383
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Financial Economics
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