Article Multilevel Determinants of Capital Structure: Evidence from Malaysia

Given the special characteristics of the Malaysian market, the current study aims to investigate the impact of variables from different levels (firm, industry and country) on the firms ’ debt policies. Considering the dynamic nature of capital structure, the study takes the novel approach of examining three levels of determinants simultaneously with respect to time effect. To achieve this, the dataset is constructed from 171 firms listed on the Main Market of the Bursa Malaysia resulting in a total of 1026 firm-year observations within 2005–2010. The firms are from seven different sectors and 63 industries. Based on the ordinary least squares (OLS) results, growth opportunities, profitability, size, ownership, dividend, industry leverage and inflation rate have highly significant relationships with leverage. Board size and firm’s asset liquidity show 5 per cent predictive power while industry liquidity, lending rate and gross domestic products (GDP) demonstrate weakly significant influences on debt levels. Meanwhile, risk, tangibility, age, tax, industry concentration and non-debt tax shields (NDTS) represent insignificant values. Generalized method of moments (GMM) results are similar except for those of dividend and tax, which have opposite signs to the results in OLS, and profitability, firm liquidity and GDP, which lose significance compared to the OLS model. There is also evidence of firms adjusting to a target level of leverage