Abstract
This paper investigates the pattern of capital structure of 4,127 Malaysian companies from 2005 to 2015. We, then specify the sample into two periods, the pre-recession period from 2002 until 2007 and post-recession period from 2009 until 2015, to determine whether there is any significant different in term liabilities between the two periods. For the third objective of this paper, we examine the impact of base lending rate (BLR) in the capital structure between pre- and post-recession periods, indicating the companies drastically change their capital structure after recession occurs. In this paper, we find a sharp downwards movement in long-term debt and total debt after 2008 year of recession. We also document the level of total debt and long-term debt to significantly higher before the recession hit. Interestingly, we find base lending rate to have negative relationship with long-term and total debts only after recession has occurred but not during the economic expansion (pre-recession period), thus supporting the study’s hypotheses.
Highlights
IntroductionThe 2008 recession became the talk of the business world once more
After a decade, the 2008 recession became the talk of the business world once more
This result is consistent with the finding by Jermann and Quadrini (2008) that states companies’ leverage is likely to lower during the recession period
Summary
The 2008 recession became the talk of the business world once more. Many believed that the recession was not a work of one person or a one-day work, but a work of different entities and individuals over a few years. The recession was initiated in United States (US) housing market, and began when the subprime mortgage loan borrowers failed to honour their obligation due to the increase in interest rates from as low as 1% to 5.25%. Many entities and individuals took the advantage of low interest rate and flood of liquidity to buy houses regardless of their poor creditworthiness and high risk of default. The situation got worse by the introduction of collateralized debt obligations (CDOs) which were based on the mortgage in the secondary mortgage market.
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