The Impact of Capital Structure on Non-Financial Firms Performance: Evidence from South Africa

This research studies the impact of capital structure on firms’ performance, based on a sample of 30 South African firms listed on the Johannesburg stock exchange market during the period 2009-2014. The performance measures used are; return on equity (ROE), return on asset (ROA), and Tobin’s Q ratio which are the dependent variables. Total debt ratio (TDR), long term debt ratio (LTDR), short term debt ratio (STDR), debt to equity ratio (D/E) and size have been used as measures of capital structure. By using the random effect panel data regression method, we found that ROE is significantly negatively related to TDR and D.E ratio. Also, Tobin’s Q is positively related to STDR and negatively related to size. However, there is no statistical significant relation between ROA and capital structure of firms. Aside from the positive relationship between Tobin’s Q and STDR, we can conclude that capital structure has a negative impact on firms’ performance. Keywords: Capital structure, Firm performance, Return on Equity, Return on Asset, Tobin’s Q.