Economic Crisis' Effects on Capital Structure Evidence From a Developing Economy

Throughout history, economic crises have had a significant impact on the capital structure of Businessesto sustainably finance their investment and operational capital needs, businesses relyon a balanced combination of debt and equity.Recent economic crises, such as the COVID19 pandemic and the 2008 Global Financial Crisis (GFC), have made it difficult for businesses to manage their capital structures.This study looks at how the capital structures of JSE firms were impacted by two distinct crises,determines which firmlevel elements were important during each era, and evaluates which capital structure theories best explain the responses to the crises.A sample of 234 companies listed on the JSE between 2004 and 2022 served as the basis for the analysis.Integrated RealTime Equity Systems, Thomson Reuters Data Stream, and financial datadepositories provided the secondary firmlevel data.Estimated General Least Squares and random effects regression models were used in the investigation.According to pecking order theory, firms deleveraged following the 2008 crisis, and liquidity emerged as the primary (negative) determinant of leverage.Businesses increased their leverage during COVID19. Profitability and growth were inversely correlated with leverage, whereas asset tangibility was positively correlated, indicating a mix of pecking order and trade-off behaviors. Financial crises cause businesses to prioritize internal finances and liquidity (pecking order), whereas operational crise force them to borrow more money from outside sources despite poorer performance (trade-off). When preparing for potential upheavals, this distinction aids policymakers and financial management in emerging markets. This study offers fresh information on how various economic crisis types specifically influence the capital structure choices made by JSE-listed companies. It provides greater insights into crisis-driven financing behavior in an emerging market environment by isolating how firmlevel variables respond under financial vs operational shocks through the use of crisisspecific interaction terms over an extended panel (2004–2022).