Capital Structure and Firm Performance: Evidence from Malaysian Listed Companies

Abstract

The paper investigates the relationship between capital structure and firm performance. The investigation has been performed using panel data procedure for a sample of 237 Malaysian listed companies on the Bursa Malaysia Stock exchange during 1995-2011. The study uses four performance measures (including return on equity, return on asset, Tobin s Q and earning per share) as dependent variable. The five capital structure measure (including long term debt, short term debt, total debt ratios and growth) as independent variable. Size is a control variable. The data are divided into six sectors which are construction, consumer product, industrial product, plantation, property, trading and service. The results indicate that firm performance, which is measured by return on asset (ROA), return on Equity(ROE) and earning per share (EPS) have negative relationship with short term debt (STD),long term debt (LTD),total debt (TD), as independent variable. Moreover, there is positive relationship between the growth and performance for all the sectors. Tobin s Q reports that there are significantly positive relationship between short term debt (STD) and long term debt (LTD). It also reports that total debt (TD) has significant negative relationship with the performance of the firm which similar to the above analysis.