Abstract


 
 
 This study investigates the determinants of corporate capital structure of various sectors in the Bursa Malaysia Main Market with the aim to establish whether the determinants of capital structure can be explained by either the trade-off or the pecking order theory. This study also examines whether there are any differences between the regressions for any two sectors or not. This study applies both the ordinary least squares (OLS) and the seemingly unrelated regression (SUR) estimators to estimate the leverage models, and subsequently determines the efficiency of each estimator. The results indicate that profitability, asset tangibility, growth opportunities, and firm size are important determinants of corporate capital structure. However, the signs of the regression coefficients suggest that the trade-o and pecking order theories are complementary. Moreover, the importance of some of these determinants differs across sectors. In most cases of the regression analyses between two sectors, the SUR estimator is found to be more efficient in explaining the determinants of capital structure among the various sectors. Hence, this study concludes that the SUR method could serve as a useful alternative methodology for capital structure research.
 
 

Highlights

  • In their seminal work, Modigliani and Miller (1958) introduce the irrelevance theorem, which postulates that in perfect capital markets, the firm’s leverage1 should not have any effect on its market value and capital investment plans since both real and financial deci-Yee Peng Chow Sectoral Analysis of the Determinants of Corporate Capital Structure in Malaysia sions can be made separately

  • The primary aim of this paper is to examine the determinants of corporate capital structure of various sectors in the Bursa Malaysia Main Market

  • The leverage models for all the combinations of two sectors are estimated to see whether there are any differences between the regressions for any two sectors or not

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Summary

Introduction

Yee Peng Chow Sectoral Analysis of the Determinants of Corporate Capital Structure in Malaysia sions can be made separately. Numerous studies have been carried out since to further understand the financing decisions of firms, and some recent empirical studies on capital structure determinants have produced contrary evidence. Most of the empirical evidence suggests that firms use some cost-benefit analysis to choose their capital structure. The primary aim of this paper is to examine the determinants of corporate capital structure of various sectors in the Bursa Malaysia Main Market. The majority of capital structure studies are confined to country level or firm level analysis. This study aims to investigate whether the capital structure determinants are explained by either the trade-off or the pecking order theory. If there are no differences, the data from the two sectors can be pooled together without any parameter restrictions and with no allowance being made for differing intercept or slope

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