Capital Structure and Firm Performance in Emerging Market: An Empirical Analysis of Malaysian Companies

Abstract

The aims of present study are to investigate the linear and inverted U-shaped relationship between capital structure and firm performance in the emerging market. Present study also examines the impact of financial crisis towards the relationship between capital structure and firm performance. The sample of this research is from all non-financial public listed companies in Malaysia from 2005 to 2016. This study utilized different methods such as generalized method of moment's methodology to eliminate invisible heterogeneity and endogeneity problems respectively. The results disclosed a reverse relationship between capital structure and firm's performance in Malaysian companies as emerging market and also confirm the existence of an inverted U-shaped relation between them. Additionally, the outcome of this study displays global financial crisis from 2007 to 2009 had a significant effect on the relationship between capital structure and firm performance in Malaysia as emerging market. Implications and recommendation for future research are discussed at the end of this paper.