THE EFFECT OF CAPITAL STRUCTURE ON THE PERFORMANCE OF MALAYSIAN PLCs DURING A TRANSITION FROM SST TO GST

Abstract

This study seeks to investigate the effect of capital structure on the corporate performance of Malaysian PLCs during a transition from SST to GST implementation. Especially focuses on the consumer products sector, 60 PLCs were chosen and financial data from 1st April 2014 until 1st April 2017 are observed. The result shows that GST implemented by the Malaysia Government leads to low corporate performance. Further, this study confirms that GST implementation has affected the capital structure and corporate performance of companies. This suggests that short-term debt tends to be less expensive and therefore increasing debt with a relatively low-interest rate will lead to an increase in profit levels. This result is consistent with the Static Trade-off Theory (Myers, 1984) whereby when debt is employed in capital structure, there will be a need for trade-off because firms are faced with the challenges of goods and services tax and bankruptcy cost.