The effect of peer firms determining firm capital structure: evidence from manufacturing in Malaysia

The purpose of this study is to investigate the impact of peer firms’ financial policies (capital structure) on target firm financing behaviour (capital structure), and to empirically test whether non-linear relationship of profitability with capital structure and growth opportunities exists. In...

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Main Author: Ayaz, Muhammad
Format: Thesis
Language:English
English
English
Published: 2019
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Online Access:http://eprints.uthm.edu.my/86/1/24p%20MUHAMMAD%20AYAZ.pdf
http://eprints.uthm.edu.my/86/2/MUHAMMAD%20AYAZ%20COPYRIGHT%20DECLARATION.pdf
http://eprints.uthm.edu.my/86/3/MUHAMMAD%20AYAZ%20WATERMARK.pdf
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spelling my-uthm-ep.862021-06-22T07:50:57Z The effect of peer firms determining firm capital structure: evidence from manufacturing in Malaysia 2019-07 Ayaz, Muhammad HG Finance The purpose of this study is to investigate the impact of peer firms’ financial policies (capital structure) on target firm financing behaviour (capital structure), and to empirically test whether non-linear relationship of profitability with capital structure and growth opportunities exists. In order to achieve this, panel data techniques (static and dynamic) using the sample of 169 public listed firms from manufacturing sector over the period of 6 years (2011-2016) were used. The results showed that firm capital structure responses to the capital structure decisions of the peer firms, which suggests that firm in manufacturing sector does not make its capital decisions in isolation and peer firms decisions impact subject firm own decisions. The findings further reveal that peer effects mainly exists through the actions (actual capital structure policies) of peer firms rather than their characteristics and peer effect is the most important factor (determinant) of capital structure than prior identified factors. Moreover, the results demonstrate that a non-linear relationship of profitability with book leverage and growth opportunities exists. The non-linear relationship posits that at the optimal level, capital structure and growth opportunities increased firm profitability. However, when leverage and growth opportunities reach beyond the optimal level, a positive relationship switches to negative. Consequently, switching from positive to negative indicates non-linear relationship. The overall results are consistent with the previous studies of peer effects and non-linearity of profitability with capital structure and growth opportunities. Thus, this provides evidence that managers of the firms in manufacturing industry of Malaysia do not rationally weigh their peer financial policies; on the other hand, using higher debt in firm capital structure is associated with higher agency cost of debt. Moreover, the findings of the present study contribute into the literature of peer effects by validating, and extending the theoretical understanding for academic researchers’ as well as for managers and policy makers. 2019-07 Thesis http://eprints.uthm.edu.my/86/ http://eprints.uthm.edu.my/86/1/24p%20MUHAMMAD%20AYAZ.pdf text en public http://eprints.uthm.edu.my/86/2/MUHAMMAD%20AYAZ%20COPYRIGHT%20DECLARATION.pdf text en staffonly http://eprints.uthm.edu.my/86/3/MUHAMMAD%20AYAZ%20WATERMARK.pdf text en validuser phd doctoral Universiti Tun Hussein Onn Malaysia Fakulti Pengurusan Teknologi dan Perniagaan
institution Universiti Tun Hussein Onn Malaysia
collection UTHM Institutional Repository
language English
English
English
topic HG Finance
spellingShingle HG Finance
Ayaz, Muhammad
The effect of peer firms determining firm capital structure: evidence from manufacturing in Malaysia
description The purpose of this study is to investigate the impact of peer firms’ financial policies (capital structure) on target firm financing behaviour (capital structure), and to empirically test whether non-linear relationship of profitability with capital structure and growth opportunities exists. In order to achieve this, panel data techniques (static and dynamic) using the sample of 169 public listed firms from manufacturing sector over the period of 6 years (2011-2016) were used. The results showed that firm capital structure responses to the capital structure decisions of the peer firms, which suggests that firm in manufacturing sector does not make its capital decisions in isolation and peer firms decisions impact subject firm own decisions. The findings further reveal that peer effects mainly exists through the actions (actual capital structure policies) of peer firms rather than their characteristics and peer effect is the most important factor (determinant) of capital structure than prior identified factors. Moreover, the results demonstrate that a non-linear relationship of profitability with book leverage and growth opportunities exists. The non-linear relationship posits that at the optimal level, capital structure and growth opportunities increased firm profitability. However, when leverage and growth opportunities reach beyond the optimal level, a positive relationship switches to negative. Consequently, switching from positive to negative indicates non-linear relationship. The overall results are consistent with the previous studies of peer effects and non-linearity of profitability with capital structure and growth opportunities. Thus, this provides evidence that managers of the firms in manufacturing industry of Malaysia do not rationally weigh their peer financial policies; on the other hand, using higher debt in firm capital structure is associated with higher agency cost of debt. Moreover, the findings of the present study contribute into the literature of peer effects by validating, and extending the theoretical understanding for academic researchers’ as well as for managers and policy makers.
format Thesis
qualification_name Doctor of Philosophy (PhD.)
qualification_level Doctorate
author Ayaz, Muhammad
author_facet Ayaz, Muhammad
author_sort Ayaz, Muhammad
title The effect of peer firms determining firm capital structure: evidence from manufacturing in Malaysia
title_short The effect of peer firms determining firm capital structure: evidence from manufacturing in Malaysia
title_full The effect of peer firms determining firm capital structure: evidence from manufacturing in Malaysia
title_fullStr The effect of peer firms determining firm capital structure: evidence from manufacturing in Malaysia
title_full_unstemmed The effect of peer firms determining firm capital structure: evidence from manufacturing in Malaysia
title_sort effect of peer firms determining firm capital structure: evidence from manufacturing in malaysia
granting_institution Universiti Tun Hussein Onn Malaysia
granting_department Fakulti Pengurusan Teknologi dan Perniagaan
publishDate 2019
url http://eprints.uthm.edu.my/86/1/24p%20MUHAMMAD%20AYAZ.pdf
http://eprints.uthm.edu.my/86/2/MUHAMMAD%20AYAZ%20COPYRIGHT%20DECLARATION.pdf
http://eprints.uthm.edu.my/86/3/MUHAMMAD%20AYAZ%20WATERMARK.pdf
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