Capital Structure Choices in Australian Indigenous Corporations: An Investigation into the Health and Community Service Industry

Date of Award


Degree Name

Doctor of Philosophy (Financial Accounting)

Schools and Centres


First Supervisor

Zahid Hassan

Second Supervisor

Jim Taggart

Third Supervisor

Aboriginal Australians, Aboriginal business enterprises, Corporate debt, Non-profit organizations, Debt financing, Charities


The growing significance of incorporated legal structures of exclusive use for Aboriginal and Torres Strait Islander people has been sustained by both an increase in the registration of Indigenous corporations (ICs) and their recent low rate of deregistration. This progress can be undermined by ineffective debt management, which has, thus far, been handled by the regulator mostly through the tightening of the legal framework under which ICs operate.

Despite its importance in protecting members’ accumulated funds and keeping ICs solvent, debt management by ICs has not benefited from the literature on capital structure choices (the choices between financing through debt and/or through members’ accumulated funds). In order to pave the way for future research into ICs’ debt management, this thesis has aimed to compare ICs’ debt (i.e. capital structure choices) with those of similar institutions in Australia (research aim 1). In its second research aim, the present thesis has investigated the extent to which liquidity has a causal effect on the ICs’ capital structure choices. It has also sought to identify the predictors of ICs’ debt (research aim 3). Using the debt-to-equity ratio, debt-to-capital ratio, short-term debt, long-term debt, short-term liabilities and long-term liabilities as debt indicators, this investigation has employed the Mann-Whitney U Test, fixed and random effect regressions and instrumental variable regressions in order to address the aforementioned three research aims. Of the current thesis results, the most significant ones are as follows: a) the amount of debt carried by ICs in Australia as well as their risk of debt default were much higher than those held by charities operating in the community service sector between 2013 and 2016; b) Indigenous corporations with low (-14.89–0.08) liquidity were twice as likely to have debt levels below the mean of 0.34 debt-to-capital ratio whereas Indigenous corporations with high liquidity (above 0.99) were nine times more likely to have debt levels above the mean debt-to-capital ratio than any other group; c) the tangibility of the assets significantly influenced short-term liabilities positively at 5 per cent, whilst impacting considerably on long-term liabilities positively at 5 per cent; and d) tangibility was also found to cause debt-to-capital ratio to rise more than 40 times higher than the impact of the liquidity ratio.

The findings in this thesis suggest a need for changes in the manner in which the regulator approaches the responsibilities of maintaining ICs’ solvency and lowering the deregistration rates. Instead of tightening the legal framework and the monitoring procedures, the regulator ought to focus on ICs’ operating cash flow and tangibility of the assets. In this respect, the regulator’s focus on debt management may be best directed towards ICs with high operating cash flow and high asset tangibility. Furthermore, the research results in this thesis should be pursued further. Future research into ICs’ capital structure choices may expand on An Investigation into Capital Structure Choices in Australian ICs pg. iv the modelling approach adopted in the current thesis by focusing on funding contracts. The influence of funding contracts on the capital structure choices of ICs in Australia may well prove to be a viable line of future research. This is so because funding allows asset accumulation to occur. This, in turn, helps to grow asset tangibility, the main cause of debt-to-capital ratio rises.

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