Determinants of Capital Structure: An Empirical Investigation of Malaysian Listed Government Linked Companies (GLCs)

Abstract

This paper investigates the determinants of capital structure in Malaysian Listed Government Linked Companies (GLCs) using a sample of 13 GLCs from a period of 1997 to 2009. Using multiple regression analysis, the study explores how the debt equity choices of Listed Malaysian Government linked Companies (GLCs) are influenced by the firm specific characteristics and macroeconomic variables. Two elements of leverage that is book value of total debt ratio and long term debt ratio were used to check any significant changes in corporate financing and found a mixed result. Tangibility and firm Size are the most significant variables to determine the corporate financing of GLCs. Whilst liquidity and interest rate are negatively significant with the book value of the total debt ratio and the long term debt ratio respectively. In contrast, the outcome of the study demonstrates that economic growth does not play a major role in the debt equity choices of GLCs. The study concluded that profitability is inconsequential in determining corporate financing; inconsistent with the findings of previous Malaysian studies. The findings reveal that both Pecking Order and the Trade-off Theory are pertinent theories to the GLCs’ capital structure. With the proper design of the capital structure and intervention from the government, the study also concluded that GLCs are less reliant on leverage to support their investment.