Ferina Marimuthu
Purpose: The objective of this study was to provide a clear understanding of the combination of factors that influences the financial performance of state-owned enterprises (SOE) in South Africa. This would lay a good foundation for stakeholders to improve such performance. Furthermore, an analysis of the factors that hinder SOEs financial performance will help to alleviate the financial burden experienced by the government in funding these entities and enable policymakers to adopt strategies to strengthen their performance.
Design/methodology/approach: Based on a sample of 33 commercial SOEs in South Africa, the study employed a multiple regression model, estimated using the Two-Step System-GMM estimator. Main variables included financial performance and leverage.
Findings: The results presented indicate that leverage, measured by long-term debt has a significant negative effect on the financial performance of SOEs. Other variables that had a significant effect on financial performance include growth opportunities, liquidity and non-debt tax shield.
Originality: This study contributed new knowledge to the limited literature on capital structure and financial performance of SOEs. This study extended previous studies on capital structure and financial performance in developed and developing economies by estimating models using the two-step GMM. This addressed the issue of endogeneity in the relationship between capital structure and financial performance which was a weakness in previous studies.