IJARP
SJIF(2020): 5.702

International Journal of Advanced Research and Publications

High Quality Publications & World Wide Indexing!

The Impact Of Capital Structure On Financial Performance Of Malaysian Public Listed Construction Firms

Volume 1 - Issue 3, September 2017 Edition
[Download Full Paper]

Author(s)
Sharifa Hashim, Hafinaz Hasniyanti Hassan
Keywords
capital structure, construction firm, financial performance, profitability
Abstract
The topic of capital structure has been widely explored among the literature. Many studies have tried to identify the optimum capital structure that would allow profit maximization for companies. However, with capital structure, there have been many divergent findings due to different sectors exhibiting different behaviors and model that attempt to establish relationship between capital structure and performance. This research therefore, seeks to identify the impact of capital structure on profitability of 36 publicly listed construction firms in Malaysia in the year 2011- 2015. The objective of this study is to determine the impact and significance of capital structure on profitability, the relationship between DA with ROE, ROA and NPM and the relationship between DE with ROE, ROA and NPM. The researcher uses secondary data from audited financial statements of construction firms published in Bursa Malaysia Stock Exchange site. Quantitative methodology using random sampling was employed and the data collected were analyzed using excel and E-views 7 econometric software to come up with descriptive, regression and correlation results. The significance of data was measured using normality test and related, correlation, autocorrelation, multicollinearity and heteroscedasticity of the data was investigated to check the significance of the model. The findings revealed that capital structure impact’s financial performance of construction firms. whereby the impact was significant with DE and not significant with DA as per p-value of the coefficient of correlation. The findings also showed a negative relationship between DA and DE with ROE, ROA and NPM.
References
[1] Akeem, L., Edwin, K., Kinyanjui, M. & Kayodele, A., “Effects of Capital Structure on Firm’s Performance: Empirical Study of Manufacturing Companies in Nigeria,” Journal of Finance and Investment Analysis (2014): accessed: 9 February 2016.

[2] Arunachalam, R. (2006). Technical Notes # 21. 1st Ed. [Online]. Sa-Dhan. Available from:http://www.sa-dhan.net/Adls/Technicalnotes/Technical_Notes_21.pdf. [Accessed: 7 March 2016].

[3] Baharuddin, N., Khamis, Z., Mahmood, W. & Dollah, H. (2011). Determinants of Capital Structure for Listed Construction Companies in Malaysia. Journal of Applied Finance and Banking. 1 (2). Available from: [Accessed: 1 March 2016].

[4] Brandstad, T. (2015). Definition of construction employer. [Online]. 2015. The Iowa Legislature. Available from: https://www.legis.iowa.gov/docs/ACO/rule/871.23.82.pdf. [Accessed: 8 March 2016].

[5] Buljevich, E. & Park, Y. (2007). Project Financing and the International Financial Markets. 1st Ed. [Online]. Massachusetts: Kluwer Academic Publishers. Available from: https://books.google.com.my/books?id=hw-KHb-

[6] Cresswell, J. (2008). Research Design: Qualitative, Quantitative and Mixed Methods Approaches. 3rd Ed. California: SAGE Publications, Inc.

[7] Damodaran, A. (2002). Investment Valuation Tools and Techniques for Determining the Value of Any Asset. 2nd Ed. [Online]. New York: John Wiley & Sons. Available from:https://books.google.com.my/books?id=sLQhYjndgwEC&pg=PA43&dq=return+on+assets&hl=en&sa=X&sqi=2&redir_esc=y#v=onepage&q=return%20on%20assets&f=false. [Accessed: 7 March 2016].

[8] Dumont, R. & Svensson, R. (2014). Capital Structure and Firms Performance: A study of Swedish Public Companies. Bachelor. Handelshogskolan Goteborgs Universitet.

[9] Dunne, P. & Lusch, R. (2008). Retailing. 6th Ed. [Online]. China: Thomson Learning, Inc. Available from: https://books.google.com.my/books?id=it0EPwKxRjkC&pg=PA40&dq=definition+of+net+profit+margin+ratio&hl=en&sa=X&redir_esc=y#v=onepage&q=definition%20of%20net %20profit%20margin%20ratio&f=false. [Accessed: 1 March 2016].

[10] Gansuwan, P. & Ittonen, K. (2012). The Influence of Capital Structure on Firm Performance. Master. Umea University.

[11] Goyal, A. (2013). Impact of Capital Structure on Performance of Listed Public Sector Banks in India. International Journal of Business and Management Invention. [Online]. 2 (10). Available from: http://www.ijbmi.org. [Accessed: 7 March 2016].

[12] Hassan, M., Ahsan, A., Rahman, M. & Alam, M. (2014). Influence of Capital Structure on Firm Performance: Evidence from Bangladesh. International Journal of Business and Management. [Online]. 9 (4). Available from: http://www.ccsenet.org/journal/index.php/ijbm/article/viewFile/35069/20407. [Accessed: 2 March 2016].

[13] Hoque, J., Hossain, A. & Hossain, K. (2014). Impact of Capital Structure Policy on Value of the Firm: A Study on Some Selected Corporate Manufacturing Firms under Dhaka Stock Exchange. Eco forum. 3 (2). pp. 77- 84. Available from: [Accessed: 28 January 2016].

[14] IBM Corporation, (2011). IBM SPSS Statistics 20 Core System User's Guide. 1st Ed. [Online]. United States: IBM Publishing. Available from: https://www.csun.edu/sites/default/files/statistics20-core-system-guide-64bit.pdf.

[15] [Accessed: 8 March 2016].

[16] John, O. (2013). Effect of Capital Structure on Firm Performance: Evidence from Nigerian Manufacturing Industry. International Journal of Innovative Research & Studies. [Online]. 2 (9). Available from: https://www.researchgate.net/publication/259971167_Effect_of_capital_structure_on_firm_performance_Evidence_from_Nigerian_manufacturing_industry?enrichId=rgreq-54319a4be2b9-4996-813239889fc27f63&enrichSource=Y292ZXJQYWdlOzI1OTk3MTE2NztBUzo5ODc4MzUzM DU4NjExNUAxNDAwNTYzMjM3Mjk0&el=1_x_2. [Accessed: 9 March 2016].

[17] Kebewar, M. (2012). The effect of debt on corporate profitability Evidence from French service sector. Undergraduate. Orleans Cedex.

[18] Khan, A. (2012). The relationship of capital structure decisions with firm performance: A study of the engineering sector of Pakistan. International Journal of Accounting and Financial Reporting. [Online]. 2 (1). Available from:

[19] http://www.macrothink.org/journal/index.php/ijafr/article/view/1825. [Accessed: 1 March 2016].

[20] Khanam, F., Nasreen, S. & Pirzada, S. (2014). Impact of Capital Structure on Firms ‘Financial Performance: Evidence from Food Sector of Pakistan. Research Journal of Finance and Accounting. [Online]. 5 (11). Available from:

[21] http://www.iiste.org/Journals/index.php/RJFA/article/viewFile/13533/14250. [Accessed: 1 March 2016].

[22] Koech, S. (2013). The Effect of Capital Structure on Profitability of Financial Firms Listed at Nairobi Stock Exchange. Masters. Kenyatta University.

[23] Lee, C. & Lee, A. (2006). Encyclopedia of Finance. 1st Ed. [Online]. New York: Spring Science Business Media Inc. Available from: https://books.google.com.my/books?id=I6BHRKYVG4C&pg=PA217&dq=return+on+assets&hl=en&sa=X&sqi=2&redir_esc=y#v=one page&q=return%20on%20assets&f=false. [Accessed: 7 March 2016].

[24] Martis, R. (2013). Capital Structure and Firms€™s  Financial Performance an Empirical Analysis of the S&P500. Master. University Van Tilburg.
[25] McArthur, J. & West, L. (2016). Multiple regression as a general data analysis technique. Research in Science Education. [Online]. 4 (1). pp. 185-192. Available from: http://link.springer.com/article/10.1007%2FBF02558591. [Accessed: 8 March 2016].

[26] Muhammad, U., Zaighum, T., saeed, A. & Muhammad, S. (2016). Impact of Capital Structure on Firms’ Financial Performance: Evidence from Pakistan. Research Journal of Finance and Accounting. [Online]. 3 (9). Available from: http://www.iiste.org/Journals/index.php/RJFA/article/view/3145. [Accessed: 9 March 2016].

[27] Mukaka, M. (2012). Statistics Corner: A guide to appropriate use of Correlation coefficient in medical research. Malawi Medical Journal. [Online]. 24 (3). pp. 67-71. Available from: http://www.bioline.org.br/pdf?mm12018. [Accessed: 8 March 2016].

[28] Mwangi, L., Makau, M. & Kosimbei, G. (2014). Relationship between Capital Structure and Performance of Non-financial Companies Listed In the Nairobi Securities Exchange, Kenya. Global Journal of Contemporary Research in Accounting, Auditing and Business Ethics (GJCRA). [Online]. 1 (2). Available from: http://www.ku.ac.ke/schools/business/images/stories/research/relationship_between_capital _structure_and_performance.pdf. [Accessed: 8 March 2016].

[29] OECD, (2011). Implementing the Tax Transparency Standards: A handbook for Assessors and Jurisdiction. 2nd Ed. [Online]. OECD Publishing. Available from:

[30] https://books.google.com.my/books?id=j9RoWZ83r0YC&pg=PA126&dq=definition+of+a+public+listed+company&hl=en&sa=X&redir_esc=y#v=onepage&q=definition%20of%20 a%20public%20listed%20company&f=false. [Accessed: 8 March 2016].

[31] Pratt, S. (2005). The Market Approach to Valuing Businesses. 1st Ed. [Online]. New Jersey: John Wiley and Sons, Inc. Available from: https://books.google.com.my/books?id=LkSVl5OhFrEC&pg=PA115&dq=definition+of+ne t+profit+margin+ratio&hl=en&sa=X&redir_esc=y#v=onepage&q&f=false. [Accessed: 1 March 2016].

[32] Ramadhan, Z. & Ramadhan, I. (2015). Capital Structure and Firm’s Performance of Jordanian Manufacturing Sector. International Journal of Economics and Finance. [Online]. 7 (6). Available from: http://dx.doi.org/10.5539/ijef.v7n6p279. [Accessed: 9 March 2016].

[33] Riaz, S. (2015). Impact of Capital Structure on Firm’s Financial Performance: An Analysis of Chemical Sector of Pakistan. Journal of Poverty, Investment and Development. 12 (1). Available from: [Accessed: 28 January 2016].

[34] Ross, S., Westerfield, R. & Jaffie, J. (1993). Corporate Finance. 3rd Ed. Irwin.

[35] Salawu, R. & Awolowo, O. (2009). The Effect of Capital Structure on Profitability: An Empirical Analysis of Listed Firms in Nigeria. The International Journal of Business and Finance Research. [Online]. 3 (2). Available from: http://ftp://ftp.repec.org/opt/ReDIF/RePEc/ibf/ijbfre/ijbfr-v3n2-2009/IJBFR-V3N2-2009-9.pdf. [Accessed: 9 February 2016].

[36] Shubita, M. & Alsawalhah, J. (2012). The Relationship between Capital Structure and Profitability. International Journal of Business and Social Science. [Online]. 3 (16). pp. 104-112. Available from: http://ijbssnet.com/journals/Vol_3_No_16_Special_Issue_August_2012/12.pdf. [Accessed: 6 March 2016].

[37] Tudose, M. (2012). Capital Structure and Firm Performance. Economy Transdisciplinary Cognition. [Online]. 15 (2). pp. 76-82. Available from: http://www.ugb.ro/etc/etc2012no2/13_Tudose_final.pdf. [Accessed: 7 March 2016].

[38] Velnampy, P. & Niresh, J. (2012). The Relationship between Capital Structure & Profitability. Global Journal of Management and Business Research. [Online]. 12 (13). Available from: http://journalofbusiness.org/index.php/GJMBR/article/viewFile/766/695. [Accessed: 7 March 2016].

[39] Voon, A. (2012). Trading the China Market with American Depository Receipts: How to Play Greater China with a Winning Edge. 1st Ed. [Online]. Singapore: John Wiley & Sons. Available from: https://books.google.com.my/books?id=c01jdOagacUC&pg=PT65&dq=Bursa+malaysia+stock+exchange&hl=en&sa=X&redir_esc=y#v=onepage&q=Bursa%20malaysia%20stock% 20exchange&f=false. [Accessed: 8 March 2016].

[40] Wakida, N. (2011). Capital Structure and Financial Performance: A Case of Selected Medium Sized Enterprises in Kampala. Master. Makerere University.

[41] Yat Hung, C., Albert, C. & Eddie, H. (2002). Capital structure and profitability of the property and construction sectors in Hong Kong. Journal of Property Investment & Finance. [Online]. 20 (6). pp. 434-453. Available from: http://search.proquest.com.ezproxy.apiit.edu.my:2048/docview/212926632/996A02CA6AE A4A23PQ/1?accountid=46052. [Accessed: 1 March 2016].

[42] Youssef, A. & El-Ghonamie, A. (2015). Factors That Determine Capital Structure in Building Material and Construction Listed Firms: Egypt Case. International Journal of Financial Research. [Online]. 6 (4). Available from:

[43] http://search.proquest.com.ezproxy.apiit.edu.my:2048/docview/1706622972/996A02CA6A EA4A23PQ/7?accountid=46052. [Accessed: 1 March 2016].

[44] Zeitun, R. & Tiana, G. (2007). Capital structure and corporate performance: evidence from Jordan. Australasian Accounting, Business and Finance Journal. [Online]. 1 (4). Available from: http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1018&context=aabfj. [Accessed: 6 March 2016].