The Influence of Debt Financing on Firms’ Performance: Empirical Evidence from Malaysia

Abstract

This study investigated the relationship between the listed firms’ debt level and performance in Bursa Malaysia during a five-year period. Based on the results of the Hausman test and Breusch-Pagan LM test, the fixed-effect model is the most appropriate model that used to analyze the panel data of 50 Malaysian listed companies within the property sector from the year 2015 to 2019. The results indicated that the short-term debt (STD) and long-term debt (LTD) have positive and insignificant effects on return on asset (ROA), which means that the increase in the short-term debt and long-term debt will lead to an increase in the return on assets. Besides that, account payables (AP) has a negative and insignificant effect on the profitability of property sector companies. According to the outcome of the Granger Causality test, the return on assets does not affect by the account payables, short-term debt, long-term debt and firm size. There is only one unidirectional causality relationship that proves that short-term debt is affected by long-term debt. Additionally, this study focuses on enhancing the existing empirical knowledge of debt financing's influence on the profitability of the listed firms in the property sector.