Pecking Order Theory, Trade-Off Theory and Determinants of Capital Structure: Empirical Evidence from Malaysia

Lim, Anthony, Chuen Eu (2011) Pecking Order Theory, Trade-Off Theory and Determinants of Capital Structure: Empirical Evidence from Malaysia. [Dissertation (University of Nottingham only)] (Unpublished)

[img] PDF - Registered users only - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader
Download (2MB)

Abstract

This study focuses on the relevance of the classical capital structure theories of the pecking order and the trade-off model in providing general explanation of the financial behaviour of Malaysian firms from 2002 to 2010. The theoretical framework suggested the potential of exhibiting asymmetrical financing behaviour for firms with leverage above and below the target leverage level with its financial surplus and deficit. With past empirical studies focused more on the determinants of capital structure, and whether the firms follow the pecking order or trade-off theory, little has be done on the examination of the variety of pecking order and trade-off asymmetric models, along with comparing their performance against the symmetric alternative.

With the data set that consist of 366 non-financial firms listed on the Kuala Lumpur Stock Exchange (KLSE) first board, the study firstly showed evidence that equity issues tracks financial deficit rather closely than of debt. Consequently, equity is not the last resort as predicted by the pecking order, for external financing requirements. Secondly, Malaysian firms are found to be indifferent to expand debts rather than retiring them to meet financial requirements, implying that financial surplus and deficit affects leverage indifferently. Finally, Malaysian firms do practice target leverage ratio and would adjust their leverage level actively when it’s below the target level than it being above the target level and also at a high

Item Type: Dissertation (University of Nottingham only)
Depositing User: EP, Services
Date Deposited: 25 Apr 2012 14:21
Last Modified: 25 Oct 2016 04:10
URI: http://eprints.nottingham.ac.uk/id/eprint/25101

Actions (Archive Staff Only)

Edit View Edit View