The Determinants of Financial Flexibility: Evidence from JSE-Listed Non-Financial Firms

Corporate financial policy requires managers to balance financing, investment, and payout decisions while maintaining sufficient financial flexibility to respond to unexpected shocks and investment opportunities. Despite the importance of financial flexibility, limited empirical evidence exists on its determinants in African capital markets. Using panel data from 106 non-financial firms listed on the Johannesburg Stock Exchange over the period 2000–2019, this study examines the determinants of financial flexibility. Financial flexibility is identified by comparing actual and predicted leverage and classifying firms with persistent spare debt capacity as financially flexible. The main empirical model is estimated as a random-effects linear probability model with heteroscedasticity-robust standard errors. The results show that financial flexibility is significantly negatively associated with leverage and Tobin’s Q, indicating that firms with higher debt levels and stronger growth opportunities are less likely to preserve borrowing capacity. Retained earnings and financing cost show weak negative associations at the 10% significance level, while dividend payout, profitability, cash holdings, and tangibility are statistically insignificant. The study contributes to the corporate finance literature by providing new evidence from an African emerging market context, incorporating payout policy into the financial flexibility framework, and showing how leverage discipline and growth-related financing demands shape firms’ financial flexibility.