Is the Alternative Exchange achieving its objectives? A capital structure perspective

Abstract

Orientation: Despite their significant contribution to the South African economy, the majority of small and medium enterprises (SMEs) fail because of lack of access to appropriate types of capital. The Alternative Exchange (AltX) was established to address the lack of access to equity finance for SMEs. Research purpose: This study aims to determine whether the AltX has adequately enabled access to equity finance for the firms listed thereon. Motivation for the study: This study was motivated by the apparent lack of SME access to appropriate forms of finance. By evaluating the effectiveness of the AltX, the study seeks to investigate whether further measures are required to enable access to equity finance for SMEs. Research design, approach and method: A quantitative methodology was employed and panel regression models were used to compare the levels of equity and debt of firms listed on the AltX to those listed on the Johannesburg Securities Exchange’s (JSE) main board. In this manner, the study aims to determine whether AltX firms enjoy the same level of access to capital markets as their counterparts on the JSE. Main findings: The findings indicate that firms listed on the AltX have significantly higher levels of debt than those listed on the JSE’s main board. This debt tends to be the more accessible yet risky short-term debt. Practical/managerial implications: The findings infer that despite the establishment of the AltX, SMEs still face considerable constraints to accessing equity finance and, as such, may be compelled to consider other means of raising finance. Contribution/value-add: This study contributes to the research on SMEs in South Africa and suggests that further interventions are required to enable their access to appropriate forms of finance.