Looi, Yuen Hui and Tan, Kai Xiuan and Wong, Jun Ken and Yeow, Kai Yi (2019) The determinants of capital structure: evidence from manufacturing firms in Malaysia. Others, UTAR.
Abstract
The current study is conducted to figure out the significance of the firm specific factors on firm’s leverage for the manufacturing sector in Malaysia. We had conducted the study on the 85 out of 129 manufacturing firms listed on Bursa Malaysia over the period from 2003 to 2017. Hence, the total observations for this study is 1275. There are four firm specific factors we had taken into account as our independent variables which include profitability, firm size, non-debt tax shield and growth, while the dependent variable is leverage. The determinant of profitability in this study is explained by using return on asset (ROA) ratio, while firm size is measured by using log of total revenue. Other than that, log of total depreciation expenses to total assets ratio will be applied in this study to represent non-debt tax shield, and another determinant of growth is denoted by percentage change in total revenue. On the other hand, debt to asset ratio is applied in this study as the indicator for leverage. We had tested the significance of independent variables on dependent variable by using the software called E-views 10, and found that the independent variables of non-debt tax shield, profitability and firm size significantly affect firm’s leverage in Malaysian manufacturing sector, while the independent variable of growth not having significant impact on firm’s leverage in the particular sector. The positive and significant result of profitability is consistent with trade off theory, and supported by the prior researches which done by Rajan and Zingales (1995), Yusuf, Yunus and Supaat (2013) and Shah and Khan (2007). Besides, the actual negative sign and significance of firm size can be explained by pecking order theory, and in accordance with the findings found by Alves Pereira and Ferreira (2011), Rajan and Zingales (1995), Hussain and Miras (2015) and Guner (2016). Other than that, the positive and significant relationship between non-debt tax shield and leverage in this study also in line with the prior researches done by Bradley, Jarrell and Kim (1984) and Vuran, Tas and Adiloglu (2017). Further, the results of negative sign and insignificance of growth are consistent with the study done by Chen and Zhao (2006), Mouamer (2011), Sheikh and Wang (2011) and Baker and Wurgler (2002).
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