AN EMPIRICAL STUDY OF THE CAPITAL STRUCTURE OF MALAYSIAN LISTED FIRMS

Abstract

Most primary evidence on capital structure is based on firms in developed capital markets (Hamada (1976), Myers (1977, 1981), Kihl and Sorensen (1986), Gordon and Malkiel (1986)). Capital structure is defined as the mix of debt, equity and hybrid securities issued by a firm to finance its operations. Capital structure is an important variable for decision making within the firm as well as decisions of organisations outside the firm. To date, there is hardly any evidence concerning the capital structure issue and its various aspects using data relating to Malaysian listed firms. This study attempts to document the various aspects of the firm's capital structure in a representative sample of sixty firms from five sectors which are continuously traded on the Kuala Lumpur Stock Exchange (KLSE) from 1975 to 1989. The difference in firms’ capital structure across sectors is assessed, the effect of the volatility of earnings on capital structure and the relationship between systematic risk and capital structure are also examined. However, this study does not address the issue of optimal capital structure but explores the problem in the Malaysian context.