The determinants of financial leverage of banking sectors in Malaysia

The objective of the study is to investigate the determinants of financial leverage of banking sectors in Malaysia. The investigation is focus on the firm-specific factors such as profitability (PF), firm’s size (FZ), earnings volatility (EVOL) and firm’s growth (GRW) that influence the financial leverage decisions of banking sectors. Financial leverage is used as a proxy to measure the capital structure of the company. The analysis is performed by using panel data model, fixed effects model for six banking sectors during the period of 1998 to 2017. The results of this study indicate the determinants that have positive impact on capital structure are profitability, firm’s size and earnings volatility. In contrast, the determinants that give negative impact on capital structure is firm’s growth. The value of R-squared is 0.673494 which indicates 67.35 percent of capital structure variation can be explained by all variation of independent variables that include in this study which are profitability, firm’s size, earnings volatility and firm’s growth while remaining 32.65 percent explained by other factors that are omitted in the model.