Title page for ETD etd-05222011-105856

Document Type Master's Dissertation
Author Mkhawane, Stephan
URN etd-05222011-105856
Document Title Capital structure decisions : lessons from South African leveraged buyouts
Degree MBA
Department Gordon Institute of Business Science
Advisor Name Title
Prof M Ward Supervisor
  • capital structures
  • buyouts
Date 2010-11-10
Availability unrestricted

The private equity industry has become a progressively more critical source of capital and effective governance for companies. The majority of capital raised by private equity funds is used for leveraged buyouts, with total funds under management amounting to R109 billion in 2009 for the South African industry. These funds are typically enhanced with additional deal level debt financing for each buyout thus representing, ex-ante, an active capital structure decision.

The objective of this study was to understand the determinants of decisions on the extent and type of leverage used in LBOs, and attempts to explain why the observed financing choices were made by the individual private equity firms. Buyouts totalling over R 26 billion and spanning the period 1998 to 2010 are analysed.

The findings are consistent with the predictions of the agency costs, trade-off and market timing theories of capital structure decisions; while little support is found for the pecking order and signalling theories. The results indicate clear patterns that lead to the supposition of an underlying model in which LBO sponsors seek to balance potential leverage related benefits with leverage related costs. The study also finds suggestive evidence indicating that the LBO financing package is designed methodically to respond to differences across firms in their size and maturity, growth prospects, in the variability of their earnings, and to a lesser extent the tangibility of their assets.

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:

Mkhawane, S 2010, Capital structure decisions: lessons from South African leveraged buyouts, MBA dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-05222011-105856/>


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