Investors make investment decisions based on their risk appetite. Furthermore, when
such investors consider shares as part of their investment portfolio, these investors
will consider the risk profile of the company it is interested in. By taking on a certain
level of risk, shareholders expect to be commensurately compensated. Shareholders
of companies with relatively higher debt levels in their capital structure and therefore
higher financial risk, require a relatively higher return on their investment in order to
compensate for such additional risk taken. Shareholders expect return in the form of
dividend pay-outs, and capital growth in the share price. A positive correlation is
therefore expected between the debt levels of a company and the total return to their
shareholders, i.e. the sum of the dividend pay-outs and the capital growth in the share
price, also referred to as total shareholder return (TSR).
The focus of this study is on the platinum industry in South Africa, as this industry is
vital to the South African economy in terms of job creation and earner of foreign
exchange as South Africa dominates the world production of platinum. The purpose of
this study is to investigate whether there is a correlation between the debt levels and
the total shareholder return (TSR) of platinum companies listed on the JSE Ltd.
Quantitative research techniques were used to address the research problem, making
use of secondary data and rank correlation-based research. Firstly, the debt-to-equity
ratio for each company was calculated based on book values. Secondly, the TSR of
each company was calculated considering the dividends received and capital growth
in share price. The correlation between the TSR and the debt-to-equity ratio was
determined using Spearman’s rank correlation coefficient.
The results were inconclusive, i.e. no, negative and positive relationships where the
relationship is for the first 12 years not significant and for the last two years significant.
Therefore the final conclusion is that this study is inconclusive to support or to reject
the conceptual scope of the study in that risk is concomitant to return, i.e. returns
compensate for risks, therefore higher debt levels require higher total shareholder
returns (and vice versa).
This study contributes to the literature on capital structure decisions from a South
African platinum company perspective. The core audience will be the management of
South African platinum companies considering changes in their capital structure as
well as investors considering investing into a listed platinum company. / MCom (Management Accountancy), North-West University, Potchefstroom Campus, 2015
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:nwu/oai:dspace.nwu.ac.za:10394/15305 |
| Date | January 2015 |
| Creators | Jooste, Sandra |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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