AN EMPIRICAL ANALYSIS OF CAPITAL STRUCTURE DECISIONS IN MALAYSIAN LISTED COMPANIES

Abstract

This paper attempts to analyze the effect of corporate tax to the frm’s capital structure. The study uses the sample of Malaysian frms that are listed in the Bursa Malaysia. We exploit a time series and cross sectional data of 35 companies over 2007-2012 and build an empirical model based on proceeding literature. These data, then, are used to examine the effects of several explanatory variables, i.e., corporate tax, bankruptcy cost, return on assets, and several controlled variables on frm capital structure decision. The results showed that, the signifcant of corporate tax is consistent with the theory that frms are subjected to lower corporate tax rates which would lead them to employ more debt in their capital structures. Several policy implications can be derived: frst, the fnancial structure should be designed with the emphasis on the role of bank centered and second, the importance of frms-characteristics to capital structure might induce the regulators to strengthen the governance characteristics of frms. In addition, there is also a need to examine the impact of monetary policy on the frm behavior.