Capital structure and value creation in Cameroonian companies

Abstract

Decision-making regarding capital structure and value creation for stakeholders are central concerns for companies. There Anglo-Saxon literature on the subject is particularly rich. However, studies conducted to date do not yet provide a definitive and satisfactory answer to this question. This paper aims to contribute to the analysis of the impact of capital structure on the variables of shareholder and stakeholder value creation. The theoretical framework is based on Modigliani and Miller's theory, the trade-off theory, the pecking order theory, the signal theory, and the agency theory. After cleaning companies’ financial statements obtained from INS secondary source data base, we retained a panel sample data of 777 Cameroonian companies, mainly limited liability companies and public limited companies belonging to six sub-sectors of activity. The study covers a period of four years, between 2014 and 2017. Using regression analyses from Stata 14 software, we found that (1) financial debt and equity have a negative and significant influence on shareholder value creation captured by ROCE and shareholder value creation captured by PAS, respectively. (2) Financial debt and equity have a positive and significant impact, respectively, on stakeholder value creation as measured by PAS and on shareholder value creation as measured by ROCE. These results suggest that Cameroonian companies must optimally combine debt and equity financing to create stakeholder and shareholder value. In addition, they should favor equity financing because of its low cost and positive impact on shareholder value creation, and resort to bank credit only as a last option, given its established effect on stakeholder’s value creation.

Classification JEL: G32

Paper type: Empirical Research