Capital Structure Policy and Sustainable Growth of Listed Non-Financial Firms in Sub-Saharan Africa

The present study tested the impact of capital structure policy on Sustainable Growth of the listed non-financial companies in Sub-Saharan Africa (SSA) based on Higgins Sustainable Growth Rate (HSGR) and Van Horne Sustainable Growth Rate (VSGR) model as measures of sustainable growth rate variable. The study employed a positivist research philosophy and quantitative, quasi-experimental, ex-post facto, and panel research design, and a sample of 513 firm-year observations from 16 listed nonfinancial firms from 658 listed firms in 48 countries in the SSA region, for a period spanning from 2017 to 2024. Capital structure policy was proxied as the percentage of total short-term debt to total debt, the percentage of total longterm debt to total debt and the percentage of total long-term debt to total assets. Sustainable growth was proxied as the ratio of total short-term debt to total assets, HSGR, and VSGR. Descriptive statistics were first applied to the data and followed by test diagnostics of the multicollinearity, heteroskedasticity, cross-sectional dependence, unit roots and model specification, after which robust panel regression (random-effects and fixed-effects generalized least squares) was applied to the data. Four model specifications were estimated: no control variables, only firms with positive sustainable growth rates, only firms with negative sustainable growth rates, and with the addition of control variables of firm size, board size and board independence. The findings indicated that capital structure policy had a positive and statistically significant impact on sustainable growth for Higgins framework; basic model: β = 0.4352, p = 0.005; overall model: β = 0.4088, p = 0.010 while under Van Horne framework basic model: β = 0.2460, p = 0.218 and overall model: β = 0.2643, p = 0.173. For the negativegrowth regime, the relationship between leverage and VSGR- was not significant, but in the same direction as would be expected under the positive-growth regime (β = -6.4313, p = 0.000), and the relationship between leverage and HSGR- was significant and in the direction opposite to that expected under the positive-growth regime (β = 0.2463, p = 0.042). The study suggests that moderate debt financing has a positive effect on sustainable growth in the absence of external constraints on financing, but is of little relevance and can even be negative when such constraints are taken into account. Listed non-financial companies in SSA are advised to engage in moderate leverage, setting up debt limits, and to encourage credit markets to be expanded to reduce borrowing costs for companies, as well as all regulators, including the Central Bank of Nigeria and the African Securities Exchanges Association.