Capital Structure
5.0 Introduction
This chapter discussed the summary of findings on the determinants of capital structure in plantations sector. Suggestion also include in this chapter for future research. 5.1 Conclusions
This study examined the determinants of capital structure under plantations sector in Malaysia. It focused on plantation companies listed in main market of Bursa Malaysia during five years period from 2006 – 2010. The data is collected from companies’ annual reports. 200 observations has been done for 40 companies. The capital structure is determine by debt ratio as expressed by total debt divided by total assets. Seven independent variables has been used included firm size, asset structure, profitability, growth, liquidity, return on investment and net working asset.
For the firm size, it is measured by log of the total assets. The positive relationship shows that bigger firms has higher leverage as compared to smaller firms. Lenders have higher confidence to give loan to the larger firms as they have low risk of financial distress and lower probability of default payments.
For the asset structure, it is measured as ratio of total fixed assets plus inventories divided by total assets. In plantation sector, the asset structure is insignificant to the debt ratio.
For the profitability, it is measured by the ratio of earnings before interest and tax to tal total asset. It shows significant positive relationship. Companies with high profit use more debt capital since they have low bankruptcy risk.
While for liquidity, it shows significant negative relationship. It is calculated using current asset ratio, which shows the ability of a firm to meet short term liabilities.
Return on investment also show significant negative relationship. This result shows that bigger company do not raise debt against soft collateral.
Next, the result from net working asset. It is measured by inventories plus account receivables minus account payables and
This chapter discussed the summary of findings on the determinants of capital structure in plantations sector. Suggestion also include in this chapter for future research. 5.1 Conclusions
This study examined the determinants of capital structure under plantations sector in Malaysia. It focused on plantation companies listed in main market of Bursa Malaysia during five years period from 2006 – 2010. The data is collected from companies’ annual reports. 200 observations has been done for 40 companies. The capital structure is determine by debt ratio as expressed by total debt divided by total assets. Seven independent variables has been used included firm size, asset structure, profitability, growth, liquidity, return on investment and net working asset.
For the firm size, it is measured by log of the total assets. The positive relationship shows that bigger firms has higher leverage as compared to smaller firms. Lenders have higher confidence to give loan to the larger firms as they have low risk of financial distress and lower probability of default payments.
For the asset structure, it is measured as ratio of total fixed assets plus inventories divided by total assets. In plantation sector, the asset structure is insignificant to the debt ratio.
For the profitability, it is measured by the ratio of earnings before interest and tax to tal total asset. It shows significant positive relationship. Companies with high profit use more debt capital since they have low bankruptcy risk.
While for liquidity, it shows significant negative relationship. It is calculated using current asset ratio, which shows the ability of a firm to meet short term liabilities.
Return on investment also show significant negative relationship. This result shows that bigger company do not raise debt against soft collateral.
Next, the result from net working asset. It is measured by inventories plus account receivables minus account payables and