Capital Structure and Market Power Interaction: Evidence From Malaysia

Abstract

This paper provides new insights on the way in which the capital structure and market owner AREER and profitability ar related, We predict and show that capital structure and market power, 8 by Tobin's Q, have a cubic relationship. Thats, at lower and higher ranges of Tobin's Q firms higher debt, and reduce their debt at intermediate range. This is due o the complex interaction market conditions, agency problems and bankruptcy costs. We also show saucer-shaped relation capital structure and profitability because of the interplay of agency costs, costs of external ir and debt tax shield. To our knowledge, we are the first to uncover these results.