Original Research

The corporate uses of debt

Sinclair Davidson, Laurence Rapp
South African Journal of Business Management | Vol 26, No 3 | a828 | DOI: https://doi.org/10.4102/sajbm.v26i3.828 | © 2018 Sinclair Davidson, Laurence Rapp | This work is licensed under CC Attribution 4.0
Submitted: 15 October 2018 | Published: 30 September 1995

About the author(s)

Sinclair Davidson, Department of Business Economics, School of Economic and Business Studies, University of the Witwatersrand, South Africa
Laurence Rapp, Department of Business Economics, School of Economic and Business Studies, University of the Witwatersrand, South Africa

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Abstract

In this article we consider the use of debt by South African firms. There are two possible uses of debt: firstly, it is a method of raising finance and secondly, a method of corporate governance. Within the South African corporate environment it is not clear whether firms would use debt for both or either of these purposes. We are unable to find evidence in favour of Modigliani and Miller's proposition one or proposition two. It appears that firms do not use debt for corporate governance purposes and we present evidence that there could be an agency problem inherent within the structure of South African business.

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