Corporate Capital Structure Determinants: Evidence from Five African Countries

Using a panel of listed firms in Ghana, Kenya, Nigeria, South Africa and Zimbabwe, we investigate corporate capital structure in Africa, with emphasis on the extent to which firm characteristics and cross-country institutional differences determine the way firms raise capital. Results indicate that firms in Africa are about as leveraged as firms in emerging economies such as Mexico, Thailand, Brazil, South Korea, Malaysia and Turkey. African firms tend to rely heavily on internal finance, and where they use external finance, they choose mostly short-term debt to fund their production activity – indicating some support for the pecking-order postulate. Moreover, firms’ profitability, size, asset tangibility and age, relate significantly to leverage; thus suggesting that remedies for inadequate institutional infrastructures are important determinants of corporate capital structure in Africa.