Capital Structure of Property Companies in Malaysia

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International Research Journal of Finance and Economics ISSN 1450-2887 Issue 74 (2011) © EuroJournals Publishing, Inc. 2011 http://www.eurojournals.com/finance.htm

Capital Structure of Property Companies in Malaysia
Wan Mansor Wan Mahmood Corresponding Author, Universiti Teknologi MARA Terengganu 23000 Dungun, Terengganu, Malaysia E-mail: dwanmans@tganu.uitm.edu.my Tel: 0199831870 Salwani Affandi Universiti Teknologi MARA Terengganu, Malaysia Nurul Syuhada Baharuddin Universiti Teknologi MARA Terengganu, Malaysia Zuraida Mohamad Universiti Teknologi MARA Terengganu, Malaysia Norazidah Shamsudin Universiti Teknologi MARA Terengganu, Malaysia Abstract This study examines the capital structure determinants of 20 property companies listed in the Bursa Malaysia’s property sector. Employing the pooled data ordinary least square (OLS) technique, the empirical results reveal that the debt-equity structure of the companies is influenced by the various firm-specific attributes and macro-economic factor. In particular, the evidence shows that property asset intensity and profitability of these property companies are significant determinants of corporate debt policy. On the other hand, firm size and growth rate do not appear to suggest any significant contribution on the capital structure decision of property companies.

Keywords: Capital structure, Property companies, Malaysia, Pooled data OLS. JEL Classification Codes:

1. Introduction
Since the seminal works of Modigliani and Miller (1958; 1963) “MM”, the literature on corporate finance has progress tremendously. One of the areas that received interest among researcher is the study of capital structure of firm of various sectors of the economy such as manufacturing firm, electric-utility companies, non-profit hospitals and agricultural firms. Theoretical advancement, particularly development of capital structure models based on asymmetric information, and more recently, on product-market and corporate control considerations, have managed to shed some light on the financing behavior of corporations. For the last one decade, we see many studies that have tested the validity of the modern theory of finance such as capital structure of firms.

International Research Journal of Finance and Economics – Issue (74)

199

Theoretically, a firm’s capital structure deals with a mixture of different securities. Various strategies can be employed to raise its required funds, but the most basic and important financial sources are retentions, shares and debt. A firm will decide what is an appropriate level of borrowing for a given its equity capital base. To assist this decision it would be useful to know if it is possible to increase shareholder wealth by changing the gearing (debt to equity ratio) level. The present study is an attempt to examine the capital structure of properties companies in emerging economies. Specifically, the paper will explore the determinant of capital structure of properties companies in Malaysia which is still relatively new and under-explored. Currently, the understanding on how the companies choose their capital structure and what are the factors that influence their corporate financing behavior is still unclear. Moreover, the property sector is quite volatile in respond to economic condition irrespective whether in the crisis situation or otherwise. Over the year, property sector is aggressively developing in Malaysia but are still lagging behind to those of developed economies such as UK, Hong Kong or even Singapore. However, the sector is progressing fast as can be seen in the numbers of property companies been listed in the Bursa Malaysia Berhad Main Board keep increasing each year. The residential property market in Malaysia is only opened up to overseas investment at the end of 2006, yet it is already attracting high levels of interest from shrewd speculators. Malaysia is growing in significance as a centre for global business activities, with...
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