Firms’ Specific Determinants of Capital Structure: An Analysis into Construction Firms in Malaysia and Singapore

Abstract

The study aims to examine the firm-specific factors such as firm size, profitability and asset tangibility in the capital structure decisions (leverage) on a sample of twenty construction firms in Malaysia and Singapore from 2009 to 2018, with 200 observations. The sample firms are chosen based on convenience sampling technique and the availability of the data. Prior studies documented inconclusive findings on the determinants of capital structure and different industries tend to reveal different patterns of relationship. In addition, the empirical evidence on comparative analysis between construction firms in Malaysia and Singapore is lacking. Hence, the objective of this study is to extend the prior work by investigating the impact of the determinants on capital structure on the construction firms in Malaysia and Singapore. The study uses panel data analysis to test the effectivity of trade-off, pecking order and agency cost theories of capital structure. The empirical findings reveal positive and significant association between firm size and capital structure for Singapore firms. Meanwhile, profitability and asset tangibility correlate negatively with capital structure. As for Malaysian firms, the three determinants exhibit insignificant association with the capital structure. The study only examines 10 construction firms in Malaysia and 10 construction firms in Singapore, therefore, the small sample size becomes the limitation of the study. Nevertheless, the findings of this study may contribute to the body of knowledge on the importance of some firm-specific determinants such as profitability, tangible assets, and firm size in order to determine the optimal level of capital structure for firms in these countries.