The determinants of corporate financial policy in Zimbabwe: empirical evidence from company panel data

This thesis examines the patterns and determinants of corporate financial policy(capital structure and dividend policy) in Zimbabwe. In particular it investigatesvarious aspects of corporate financial behaviour in an emerging market; the evolutionof corporate financial structure and dividend payout ratio over the past 25 years(1975-1999), the impact of the reform programme (introduced in 1992) on firmcharacteristics, the corporate financing patterns during the period 1990-1999, thedeterminants of corporate capital structures and dividend policy and the interactionbetween corporate financing and dividend policy decisions.The main results that emerge from the analysis suggest that (i) the debt ratio for theZimbabwean corporate sector significantly increased after the reform (ii) theZimbabwean corporate sector mainly depends on external finance (75 % of totalfinancing) especially short-term finance, which contributes 52 % of total financing.Furthermore, the results support the following hypotheses (i) the pecking orderhypothesis that firms prefer internal financing to external financing, (ii) the trade-offhypothesis that non-debt tax shields reduce the expected gains from leverage, (iii)firms use liquid assets to finance investments, (iv) the agency cost hypothesis thatincreasing managerial ownership helps to align the interests of managers andshareholders and therefore reduces the role of debt as an agency-conflict mitigatingfactor, (v) large firms have lower bankruptcy costs and therefore can support moredebt than smaller firms, (vi) debt service limits the amount of cash paid out asdividends, and (vii) high growth firms rely on external finance more than low growthfirms (viii) high growth and firms have low payout ratios (iv) Cash flows andinstitutional investors increase the likelihood that firms will pay dividends (v) capitalstructure and dividend policy decisions are interdependent and highly leveraged firmshave low payout ratios.