The effect of capitals structure on firm's performance: evidence from Malaysian construction industry

The main objective of this study is to examine the effect of capital structure on firm’s performance specifically focusing on the Malaysian construction firms. This study also attempted to highlight the theories of capital structure that closely related to the Malaysian construction firms. This study uses 21 sample firms listed on the Main Market of Bursa Malaysia with at least 10 years trading experience. The period of study is 7 years (2009-2015). A few series of regressions has been conducted and the final results are reported based on fixed effect model with robust standard error. The findings show that all variables; long term debt, total debt, size and sales growth have an effect on firm’s performance except the short term debt. The long term debt and sales growth have a positive relationship with firm’s performance. The results indicate that an increase in the long term debt and sales growth are associated with an
increase in the firm’s profitability. Meanwhile, the total debt and size show a negative and significant relationship with firm’s performance. Therefore, the negative relationship between debt and firm’s performance is fits the trade-off theory. The trade-off theory explains that overleverages firm’s capital structure will cause the difficulties to meet the interest payment obligation which later would jeopardise the firm’s value.