Capital Structure Influence on Construction Firm Performance

Abstract

The interconnectedness between capital structure and firm performance is a topic of high interest among scholars and management alike. The scholars tend to unveil the why segment of the relationship, while the management looks into the how side to promote capital structure policy which can optimise the firm performance. While many studies have looked into this relationship across multiple industries and spanning across decades of data, the current study trains its lens on Malaysian public listed company companies which operate in the construction sector, and with data window between 2010 to 2014. This specific sector was chosen for their high gearing which renders firms to relatively high insolvency exposure emanating from interest rate fluctuations. The five-year timeframe was selected to isolate potential data contaminations streaming from global financial crisis which winds down in 2009. Financial data of the company were extracted from Bloomberg Terminal based on a pre-prepared list of Bloomberg tickers. A total of 225 observations were recorded in this study. Using Tobin’s Q as a proxy for firm performance, this study finds a mixed result where short term debts ratio indicates a significant negative effect, while long term debt ratio presents a non-significant influence. Explanations on this output are therefore discussed in this paper.

Keywords

• Capital structure
• firm performance
• panel data
• debt ratio