The determinants of financial performance of South African State-Owned entities

Several state-owned enterprises (SOEs) have suffered an imminent collapse, resulting in various support from the government. It has increased the debt level of the government and the SOEs. The study examined the factors that influence the financial performance of South African SOEs. This study used a quantitative methodology and secondary data from 33 South African SOEs from 1995 to 2017. The data were analyzed using a multiple regression model and the GMM estimation technique. The study's conclusions show a statistically significant inverse relationship between capital structure and financial performance. The evidence further showed that government intervention in financial assistance, such as grants, funds, rebates, and subsidies, has contributed to the poor performance of SOEs. The inverse association suggests that the SOE's performance worsens despite government support, which is quite concerning. The results demonstrate that there are better choices than government support for developing SOEs since it makes management more dependent on it to meet operational needs and seize expansion possibilities. Additionally, the increased use of debt stresses government finances due to the rise in government guarantees. The study concludes that, contrary to the agency theory, leverage does not enhance SOEs' performance, suggesting they should be careful when selecting their capital structure. Finally, the South African SOEs’ performance could be better with government support. The findings have several policy implications for the government and the management of SOEs.