Board Characteristics and Capital Structure of Malaysia Consumer Products Sector

Kuah Yoke Chin,Zuriawati Zakaria

doi:10.32890/ijbf2017.13.1.8499

Kuah Yoke Chin, Zuriawati Zakaria

Open Access

https://doi.org/10.32890/ijbf2017.13.1.8499

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Abstract

This study investigated the relationship between board characteristics and capital structure, namely total debt, short-term debt, and long-term debt of firms in the Malaysian consumer products sector for the period 2010 to 2014. Based on 109 firms selected for the study, the firms’ decision about capital structure regardless of total debt, short-term debt or long-term debt is not influenced by the size of the board. However, if the board membership constitutes more independent directors, the proportion of short-term debt is even higher than the long term-debt. Board meetings were found to have a significantly negative influence on firms’ decisions concerning total debt financing. The findings also revealed that large firms hold more short-term and long-term debts when there is an increase in the number of members on the board. The firms that have been long in existence focused more on short-term debt financing and their growth in terms of capital expenditure. Consequently, the total debt of the firms also increased.

Highlights

Firms’ capital structure consists of debt and equity financing (Ranti, 2013)
The findings of this study revealed that the older the consumer product firms in Malaysia, the more they relied on debt financing, especially short-term financing at the 1% significance level
The purpose of this paper was to study the impact of board characteristics on the capital structure of consumer product firms listed in Bursa Malaysia, for the five year period from 2010 to 2014

Summary

Introduction

Firms’ capital structure consists of debt and equity financing (Ranti, 2013). The decisions regarding firm’s financing are influenced by the board of directors and in fulfillment of the Corporate Governance Code of Practices. The effectiveness of the board in monitoring the management behaviors could directly or indirectly improve the firm’s ability to access debt financing. Strong pressures from the board of directors lead managers to pursue a lower leverage (Berger & Lubrano, 2006). If a board consists of more independent directors, the firm would experience a high leverage (Berger, Ofek, & Yermack, 1997). The occurrence of agency problems and the possibility of managers executing for personal interests necessitates the presence of independent boards to mitigate such issues (Heng et al, 2012)

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