Title page for ETD etd-04052011-120750

Document Type Master's Dissertation
Author Dreyer, Jacque
URN etd-04052011-120750
Document Title Capital structure : profitability, earnings volatility and the probability of financial distress
Degree MBA
Department Gordon Institute of Business Science
Advisor Name Title
Ms Z Ismael Supervisor
  • financial distress
  • leverage
  • capital structure
  • pecking order
Date 2011-04-20
Availability unrestricted

This research project set out to determine whether there is a relationship between the observed leverage levels of South African companies, their profitability, earnings volatility and the probability of financial distress. The relevant body of knowledge against which to execute this research project is known as capital structure theory.

Capital structure theory deals with the way in which firms finance themselves. It is concerned with the relationship between the structure of debt, equity and hybrid securities found on the right hand side of the firmís balance sheet.

It is believed that the 2007/8 global financial crisis offers researchers a unique opportunity to gain insight into how the observed leverage levels of firms and their earnings volatility interact to form their probability of financial distress. This area of research is of particular interest since it is commonly believed and frequently stated that South African firms are underleveraged and secondly because there is contrarian research beginning to be published indicating that firms with very little or no debt (commonly referred to as lazy balance sheets) are outperforming their more indebted peers and are being rewarded by investors for their prudence.

Copyright © 2010, 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:

Dreyer, J 2010, Capital structure : profitability, earnings volatility and the probability of financial distress, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-04052011-120750/ >


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