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Author: Chai Siew Ching
Chai Siew Ching
Thesis Title: Determinants of Capital Structure: Evidence from Malaysian Listed Firms
Determinants of Capital Structure: Evidence from Malaysian Listed Firms
Advisor: 陳俊男
Chun-Nan Chen
Committee: 陳俊男
Chun-Nan Chen
林軒竹
Hsuan-Chu Lin
謝劍平
Joseph C.P. Shieh
張琬喻
Woan-Yuh Jang
Degree: 碩士
Master
Department: 管理學院 - 財務金融研究所
Graduate Institute of Finance
Thesis Publication Year: 2019
Graduation Academic Year: 107
Language: 英文
Pages: 80
Keywords (in Chinese): capital structurebusiness life cycletrade-off theorypecking order theory
Keywords (in other languages): capital structure, business life cycle, trade-off theory, pecking order theory
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The purpose of this study is to examine whether the determinants implied by financial theories are able to provide convincing explanations for the capital structure of non-financial listed firms in Malaysia. Traditional explanatory variables, such as profitability, firm size, tangibility, growth opportunities, and liquidity are used in this study to determine the influence of the determinants upon the leverage of a firm. The final sample consists of a balanced panel of 482 companies listed on Bursa Malaysia’s main board from 2008-2017. Using a panel data approach, the results show that profitability, growth, and liquidity have statistically significant negative relationships with leverage. Size and tangibility have statistically significant positive relationships with leverage. Besides that, by including life cycle dummy variables, this study also finds that the life cycle stages of a firm affect the capital structure decision. Malaysian listed firms have different capital structure at different life cycle stages. Firms at introductory and decline stage are most leveraged, followed by growth and shakeout stage. Firms at mature stage are the least leveraged. The findings of this study are consistent with several previous studies and advocates that both the pecking order and trade-off theories are in place in providing justification on the capital structure of Malaysian listed companies.


The purpose of this study is to examine whether the determinants implied by financial theories are able to provide convincing explanations for the capital structure of non-financial listed firms in Malaysia. Traditional explanatory variables, such as profitability, firm size, tangibility, growth opportunities, and liquidity are used in this study to determine the influence of the determinants upon the leverage of a firm. The final sample consists of a balanced panel of 482 companies listed on Bursa Malaysia’s main board from 2008-2017. Using a panel data approach, the results show that profitability, growth, and liquidity have statistically significant negative relationships with leverage. Size and tangibility have statistically significant positive relationships with leverage. Besides that, by including life cycle dummy variables, this study also finds that the life cycle stages of a firm affect the capital structure decision. Malaysian listed firms have different capital structure at different life cycle stages. Firms at introductory and decline stage are most leveraged, followed by growth and shakeout stage. Firms at mature stage are the least leveraged. The findings of this study are consistent with several previous studies and advocates that both the pecking order and trade-off theories are in place in providing justification on the capital structure of Malaysian listed companies.

ABSTRACT I ACKNOWLEDGEMENTS II TABLE OF CONTENTS III LIST OF TABLES VI LIST OF FIGURES VII CHAPTER 1: INTRODUCTION 1 1.1 Research background 1 1.2 Statement of problem 1 1.3 Purpose of study 3 1.4 Organization of study 4 CHAPTER 2: LITERATURE REVIEW & HYPOTHESIS DEVELOPMENT 5 2.1 Theories of capital structure 5 2.1.1 Traditional theory of capital structure 5 2.1.2 The Modigliani and Miller (1958) 5 2.1.3 The Modigliani and Miller (1963) 6 2.1.4 Trade-off theory 7 2.1.5 Pecking order theory 7 2.1.6 Agency cost theory 8 2.2 Determinants of capital structure- empirical evidence 8 2.2.1 Profitability 8 2.2.2 Firm size 9 2.2.3 Tangibility 10 2.2.4 Growth opportunities 11 2.2.5 Liquidity 12 2.3 Firm’s life cycle 13 2.3.1 Review of firm’s life cycle 13 2.3.2 Methodologies to measure life - cycle stages 14 2.4 Capital structure and firm’s life cycle- empirical evidence 15 CHAPTER 3: METHODOLOGY 18 3.1 Data sources and description 18 3.2 Variables 18 3.2.1 Dependent variables 18 3.2.2 Explanatory variables 19 3.3 Empirical Model 23 CHAPTER 4: EMPIRICAL RESULTS AND DISCUSSION 25 4.1 Evaluation of Estimation Model 25 4.1.1 Multi-collinearity 25 4.1.2 Heteroscedasticity 26 4.1.3 Autocorrelation 27 4.1.4 Hausman Test 28 4.1.5 F test 28 4.2 Descriptive Statistics 29 4.3 Regression results 31 4.3.1 Profitability 32 4.3.2 Size 33 4.3.3 Tangibility 33 4.3.4 Growth 33 4.3.5 Liquidity 34 4.3.6 Life cycle stages 34 4.4 Sensitivity analysis 35 4.4.1 First sensitivity analysis 35 4.4.2 Second sensitivity analysis 38 4.4.3 Third sensitivity analysis 40 CHAPTER 5: CONCLUSION AND RECOMMENDATION 43 5.1 Conclusion 43 5.2 Recommendation for future research 44 REFERENCES 45 APPENDICES 50 Appendix A: Relationship between leverage and its determinants in prior empirical studies 50 Appendix B: Categorization of firms into different life cycles 51 Appendix C: VIF test 52 Appendix D: Definition of life cycle variables 53 Appendix E: Fixed effects regression result 54 Appendix F: Summary of the relationship between dependent variables and explanatory variables 58 Appendix G: Fixed effects regression result- first sensitivity analysis 59 Appendix H: Fixed effects regression result- second sensitivity analysis 63 Appendix I: Fixed effects regression result- third sensitivity analysis 67

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