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A theoretical and econometric evaluation of corporate governance and capital structure in JSE-listed companies

Navitha Singh Sewpersadh (Department of Accounting, Economics and Finance, University of KwaZulu-Natal, Durban, South Africa)

Corporate Governance

ISSN: 1472-0701

Article publication date: 23 May 2019

Issue publication date: 15 October 2019




A vital resource for attracting investments and boosting economic growth is compliance with corporate-governance practices. To achieve firm growth, businesses often rely on leverage as a source of finance, which has tax-saving benefits but could attract financial distress costs. In this context, this study aims to examine the relationship between corporate governance and the use of debt financing in Johannesburg Stock Exchange (JSE)-listed companies.


This study used a six-year period to examine 713 annual reports in an unbalanced panel of 130 JSE-listed companies from 2011 to 2016. The empirical econometric methodology used was the two-step difference generalised method of moments estimation model, which is robust in controlling endogeneity and potential bi-directional causality between leverage and corporate governance.


This study illustrated that corporate governance practices and firm-specific variables such as profitability, firm size and firm age have a significant influence on the capital structure decisions of JSE-listed firms. This study found support for four out of the six hypotheses. CEO duality and director ownership are positively correlated with leverage, whereas audit committee independence and board size are negatively correlated with leverage. This study also found contraventions of board independence, audit committee independence and CEO duality. The technology sector was the least compliant, with only 40 per cent of their boards being independent. The consumer-services sector had the maximum presence of CEO duality (7 per cent). The industrial sector had the highest average director ownership (18 per cent). The heath-care sector had 28 per cent of their audit committees in contravention of the independence rule.

Practical implications

A useful analysis of the theoretical frameworks used by academic writers are provided. This study revealed the governance practices contravened by the relevant sectors, as well as the associations between corporate governance and leverage.


The study contributes to the literature on capital structure and corporate governance by an emerging economy such as South Africa (SA) which has not been explored. This study’s results have key implications for policy-makers, practitioners, investors and regulatory authorities. This study informs these constituencies about a set of governance attributes that are catalysts and/or inhibitors of leverage.



The author expresses gratitude to the two anonymous reviewers for their time and effort in refining and improving this article.


Sewpersadh, N.S. (2020), "A theoretical and econometric evaluation of corporate governance and capital structure in JSE-listed companies", Corporate Governance, Vol. 19 No. 5, pp. 1063-1081.



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