Market Timing, Capital Structure and Performance of Listed Firms in Africa

Abstract

The main rationale for this study is to investigate the effect of market timing, capital structure and performance of listed firms in Africa. The thesis employs various econometric models to analyse the unbalanced panel data collected from 16 African countries from 2007-2017. Annual financial reports from Africa listed firms, covering 11- years including the period the study started was obtained from Bureau Van Dijk (ORBIS) database, and the macro data was also obtained from the WDI database. The study used Fixed Effects and Random Effects models where appropriate, based on the Hausman test result obtained. The results show a negative significant relationship between market timing (market-to-book ratio) and market leverage in Africa. However, the study‟s findings also show a positive significant relationship between market timing and book leverage. On the firms‟ performance, the study‟s results show that, leverage largely has a negative relationship with return on assets (ROA) and TOBIN‟s Q. Finally, the study‟s finding reveals that capital structure (leverage) has no significant relationship with market value added (MVA) in Africa. The policy implication is that, the study‟s finding will greatly help improve literature knowledge on capital structure decision making and more essentially on market timing (MTB) ratio for the listed firms in Africa. Since the study‟s findings indicate that market timing has huge implication on firms‟ performance when issuing shares the study recommends that MTB ratio should be high when going public since it prompts a signal of lower cost of external equity financing and thereby serving as a calyst for a rapid business growth in Africa. Also, ROA should be focused on more by business practitioners so as to help promote business growth in Africa since it provides a strong benchmarks of firms‟ performance measurements.