THE CAPITAL STRUCTURE OF ASIAN FIRMS
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Although extensive empirical studies have been conducted on capital structure in the context of developed countries, few have been carried out on emerging markets using large pools of data with comprehensive modeling techniques . This paper examines the financial characteristics o f Malaysian companies and their debt policies using data of 106 firms from 1992 to 1999. The results ofpooled GLS regressions show that all types of debt (short-term, long-term, and total) are influenced by the variables for profitability, size, and tangibilitybut not by growth, risk, and investment opportunity (market-to-book-value ratio). Thus, the latter results are contrary to evidence from developed markets. However, when the data are classified into two sub-periods, only in the first (1992-95) does the risk variable reveal the hypothesized positive influence on all debt ratios, reflecting Malaysia s economic uncertainty in the throes of the Asian financial crisis and implementation during the second sub-period (1996-99) ofthe domestic capital control policy. Profitability has a persistent and consistent negative relationship with all types o f debt ratios in both periods; this confirms the capital structure.
Abstract
Although extensive empirical studies have been conducted on capital structure in the context of developed countries, few have been carried out on emerging markets using large pools of data with comprehensive modeling techniques . This paper examines the financial characteristics o f Malaysian companies and their debt policies using data of 106 firms from 1992 to 1999. The results ofpooled GLS regressions show that all types of debt (short-term, long-term, and total) are influenced by the variables for profitability, size, and tangibilitybut not by growth, risk, and investment opportunity (market-to-book-value ratio). Thus, the latter results are contrary to evidence from developed markets. However, when the data are classified into two sub-periods, only in the first (1992-95) does the risk variable reveal the hypothesized positive influence on all debt ratios, reflecting Malaysia s economic uncertainty in the throes of the Asian financial crisis and implementation during the second sub-period (1996-99) ofthe domestic capital control policy. Profitability has a persistent and consistent negative relationship with all types o f debt ratios in both periods; this confirms the capital structure.