Capital structure effect on firms performance: Focusing on consumers and industrials sectors of Malaysian firms / Zuraidah Ahmad, Norhasniza Mohd Hasan Abdullah and Shashazrina Roslan

This study seeks to investigate the impact of capital structure on firm performance by
analyzing the relationship between operating performance of Malaysian firms,
measured by return on asset (ROA) and return on equity (ROE) with short-term debt
(STO), long-term debt (LTO) and total debt (TD). ). Four variables found by most
literature to have an influence on firm operating performance, namely, size, asset
grow, sales grow and efficiency, are used as control variables. This study covers two
major sectors in Malaysian equity market which are the consumers and industrials
sectors. 58 firms were identified as the sample firms and their financial data from the
year 2005 through 2010 are used as observations for this study, resulting in a total
numbers of observations of 358. A series of regression analysis were executed for
each model, where either one of the capital structure proxies is included in each
analysis. Lag values for the proxies were also used to replace the non lag values in
order to ensure that any extended effect of capital structure on firm performance is
also examined. The study finds that only short term debt and total debt has significant
relationship with ROA while ROE has significant on the overall debt level. The
analysis with lagged values shows that non of lagged values for total debt, short term
debt and long term debt has significant relationship with performance. The study
therefore concludes that capital structure has an effect on operating performance of
Malaysian firms for two major sectors.