The impact of capital structure and board characteristics on firms performance: evidence from Malaysian plantation Industry

The primary purpose of the study is to examine the effect of capital structure and internal corporate governance mechanism such as board characteristics on the firm’s performance in the plantation sector. This study also highlights the relevant theories of capital structure and related corporate governance background to explain the performance of Malaysian plantation companies. The sample of the study consists of a financial and nonfinancial data of 44 companies listed in Main Market of Bursa Malaysia firms with five years period of study. It uses return on assets and return on equity as the dependent variables. The firm characteristics independent variables are short term debt, long term debt, and total debt while firm size and growth are used as the control variables. For corporate governance variable, this study uses composition of board, role duality and board size. Results shows that firm size and role duality have significant positive effects on both return on asset (ROE) and return on asset (ROA). While long term debt and total debt have negative relationships, firm size and role duality has a positive relationship on ROE. This shows that plantation firms are at better position to increase the performance if less long-term debt is used. On the other hand, having a different individual as chairman and executive is shown not to contribute to enhance the corporate governance of plantation companies, thus deteriorating their performance. For ROA, results show that each short term debt and long-term debt have shown significant positive at 1% and significant negative at 5% respectively. The findings provide valuable information to investor in understanding that certain firms characteristics namely firm size and long-term debt influence positively their returns on investment, and efficiency of companies. Besides, the study may help company management teams in the plantation sector to evaluate their preference of capital structure and corporate governance policies, while helping businesses to optimize the shareholder equity and business profitability.