Dynamic Capital Structure Analysis Among the Manufacturing and Non-Manufacturing Firms in Malaysia

Abstract

The aim of this study is to examine the impact of dynamic firm-level determinants on the financing decision of manufacturing (consumer product) and non-manufacturing (trade and services) firms listed on Bursa Malaysia during 1996–2014. This study employs a dynamic panel model, Generalized Methods of Moments (GMM) to analyse the relationship between leverage and the capital structure determinants which include lag leverage, profitability, growth opportunities, tangibility, firm size, liquidity, business risk and non-debt tax shield. This study focused on the trade-off theory and pecking order theory. The results revealed that that four independent variables, namely lag leverage, profitability, tangibility and firm size, are significantly related to total debt for manufacturing firm (consumer product). Whereas, for non-manufacturing firms (trade and services), all the capital structure determinants are significant to total debt except business risk. To sum it up, the coefficient of non-debt tax shield confirmed that it is the most influential determinants for both manufacturing (consumer product) and non-manufacturing firms (trade and services). In addition, the GMM model proved that the speed of adjustment of non-manufacturing (trade and services sector) firms is faster than the manufacturing firms (consumer product).