The impacts of debt financing to firm performance: Public listed firms in Malaysia / Azja Delana Wasli

Capital Structure is how a firm finances its overall operations and growth by using different sources of funds. It consists of debt financing and equity financing or both of them. A firm's capital structure can be a mixture of long-term debt, short-term debt, common equity and preferred equity. This study is focusing more on debt financing. Debt financing is also known as an external financing and equity financing is also known as internal financing. Debt comes in the form of bond issues or long term notes payables while equity is classified as common stock, preferred stock or retained earnings. The decision of capital structure is really important for a firm as any mistakes from it can lead to decease or bankruptcy. Since capital structure is really important in the company survival, the Chief Financial Officer of a firm should be able to make a good decision on how to finance their firm. Many assumptions on bankruptcy arise from a finn that use debt financing. Excessive leverage or uncontrolled usage of debt has bad impacts to the firms as it can expose them with financial risks. However, some researchers found out that there is no relationship between debt financing and firm performance. They even said that debt financing is better as it increases the efforts of the managers in generate more revenue in order to meet their payments. In other words, it can be such a motivation to the managers. The findings of this study will contribute greatly to the benefits of financial managers and help them examine the relationship between debt financing and firm performance.