Title page for ETD etd-03162010-143159


Document Type Master's Dissertation
Author Rayan, Kuben
URN etd-03162010-143159
Document Title Financial leverage and firm value
Degree MBA
Department Gordon Institute of Business Science
Supervisor
Advisor Name Title
Mr M MacKenzie Supervisor
Keywords
  • financial
  • business enterprises
Date 2009-04-01
Availability unrestricted
Abstract

The capital structure debate has been live for decades, with the key point of contention for many researchers being whether capital structure positively or negatively impacts firm value. Much of the literature on this question takes its departure from the seminal writings of Modigliani and Miller (1958) and their Theorem of Irrelevance. Many researchers have subsequently argued their case for and against the optimal value capital structure. The purpose of this research is to evaluate whether in a South African context an increase in financial leverage positively or negatively impacts firm value. Furthermore, given the high level and volatility of the current local interest rate market, this report also considers how the volatility of the local interest rate impacts on capital structure.

This research was conducted using secondary data sourced from the McGregor BFA database for the period 1998-2007. The sample included 113 Johannesburg Stock Exchange (JSE) listed firms, which were stratified by industry in order to distinguish between different industries dynamics in this regard. Regression analysis was carried out for both tests

It was found that an increase in financial leverage is negatively correlated with firm value. The study on the impact of interest rates on capital structure proved to be inconclusive.

2008, University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria

Please cite as follows:

Rayan, K 2008, Financial leverage and firm value, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-03162010-143159/ >

G10/78/ag

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