EconPapers    
Economics at your fingertips  
 

Investigation of optimal capital structure in Malaysia: a panel threshold estimation

Abd Halim Ahmad and Nur Adiana Hiau Abdullah

Studies in Economics and Finance, 2013, vol. 30, issue 2, 108-117

Abstract: Purpose - The purpose of this paper is to investigate the effect of leverage on Malaysian listed firms' value and the optimal level of debt at which a firm could maximize its value. Design/methodology/approach - The authors employ an advanced panel threshold regression estimation developed in 1999 by Hansen that will indicate whether there are positive and negative impacts of leverage on firm value. This estimation procedure has the advantage of quantifying the threshold level of debt as compared to thead hocclassification procedure of splitting the sample. Findings - The results show that debt is only pertinent to the firm value up to a threshold level of 64.33 per cent. Additional debt beyond the threshold level does not add to a firm's value. The appropriate level of debt should be applied, which would thus maximize the firm and stockholders' value. Originality/value - To the best of the authors' knowledge, this is the first study to look at this issue for Malaysian listed firms. The findings from this paper may provide a critical analysis of the usage of debt in firms' capital structure. An excessive level of debt could lead to a debt overhang situation and insolvency at the microeconomic firm level; this could eventually could cause vulnerability in financial systems and thus lead to the financial catastrophes.

Keywords: Capital structure; Malaysia; Gearing; Public companies; Panel threshold; Optimal leverage; Firm value (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:v:30:y:2013:i:2:p:108-117

DOI: 10.1108/10867371311325426

Access Statistics for this article

Studies in Economics and Finance is currently edited by Prof Niklas Wagner

More articles in Studies in Economics and Finance from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().

 
Page updated 2024-06-28
Handle: RePEc:eme:sefpps:v:30:y:2013:i:2:p:108-117