To read this content please select one of the options below:

THEORIES OF CAPITAL STRUCTURE: EVIDENCE FROM AN EMERGING MARKET

I.M. PANDEY (Indian Institute of Management)
T. CHOTIGEAT (Nicholls State University)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 1 February 2004

1165

Abstract

Although extensive empirical studies have been conducted on capital structure in the context of developed countries, few have been carried out on emerging markets using large pools of data with comprehensive modeling techniques. This paper examines the financial characteristics of Malaysian companies and their debt policies using data of 106 firms from 1992 to 1999. The results of pooled GLS regressions show that all types of debt (short‐term, long‐term, and total) are influenced by the variables for profitability, size, and tangibility—but not by growth, risk, and investment opportunity (market‐to‐book‐value ratio). Thus, the latter results are contrary to evidence from developed markets. However, when the data are classified into two sub‐periods, only in the first (1992–95) does the risk variable reveal the hypothesized positive influence on all debt ratios, reflecting Malaysia's economic uncertainty in the throes of the Asian financial crisis and implementation during the second sub‐period (1996–99) of the domestic capital control policy. Profitability has a persistent and consistent negative relationship with all types of debt ratios in both periods; this confirms the capital structure prediction of the pecking order theory in an emerging capital market.

Citation

PANDEY, I.M. and CHOTIGEAT, T. (2004), "THEORIES OF CAPITAL STRUCTURE: EVIDENCE FROM AN EMERGING MARKET", Studies in Economics and Finance, Vol. 22 No. 2, pp. 1-19. https://doi.org/10.1108/eb028777

Publisher

:

Emerald Group Publishing Limited

Copyright © 2004, Emerald Group Publishing Limited

Related articles