Inappropriate capital structure is one of the reasons the company goes into financial distress. Recently the average number of companies went bankrupt in Malaysia were increasing over the years. This also has been followed by increasing in the number of unlisted companies in KLSE. Therefore, it could be concluded that the number of companies went through financial distress in Malaysia becoming higher. The overall objective of the study is to find the effect of capital structure on the financial distress of non-financial companies listed in KLSE. Several independent variables which were financial leverage, debt maturity, equity structure, and asset structure had been taken into account to represent capital structure, and Altman Z-score used as the measurement of financial distress. Quantitative along with secondary data has been employed in this study extracted from 74 non-financial companies’ financial statements published in KLSE from 2013 – 2017. OLS linear regression has been employed to help in answering the hypotheses. The study discovered that financial leverage, external equity, and assets tangibility has a negative and significant relationship towards financial distress, besides internal equity has a positive and significant relationship towards financial distress. However, debt maturity has a positive but insignificant relationship towards financial distress.
Abeywardhana, D. (2017). Capital Structure Theory: An Overview. Accounting and Finance Research, 6(1), 133-138.
Abeywardhana, D., & Magoro, K. (2017). Debt Capital and Financial Performance: A Comparative Analysis of South African and Sri Lankan Listed Companies . Asian Journal of Finance & Accounting , 9(2), 103-127.
Abu-Rub, N. (2012). Capital structure and firm performance: Evidence from Palestine. Journal of Money, Investment and Banking, 4(23), 109-117.
Ahmed, N., & Hadi, O. A. (2017). Impact of Ownership Structure on Firm Performance in the MENA Region: An Emprical Study. Accounting and Finance Research, 6(3), 105-115.
Ahmeti, F., & Prenaj, B. (2015). A Critical Review of Modigliani and Miller's Theorem of Capital Structure. International Journal of Economics, Commerce and Management, 3(6), 914-924.
Akhtar, S., Javed, B., Maryam, A., & Saida, H. (2012). Relationship between Financial Leverage and Financial Performance: Evidence from Fuel & Energy Sector of Pakistan. European Journal of Business and Management, 4(11), 7-17.
Altman, E. (2000). Predicting financial distress of companies: revisiting the Z-score. Stern School of Business, New York University, 9-12.
Altman, E. I. & Hotchkiss, E., (2010). Corporate Financial Distress and Bankruptcy. 3rd ed. United States of America: John Wiley & Sons, Inc.
Appiadjei, E. A. (2014). Capital Structure and Firm Performance: Evidence from Ghana Stock Exchange. Research Journal of Finance and Accounting, 5(16), 37-43.
Barroso-Castro, C., Villegas-Perinan, M., & Casillas-Bueno, J. (2015). How boards' Internal and External Social Capital Interaxt to Affect Firm Perormance. Strategic Organization, 1-26.
Bassey, B. E., Edom, G. O., & Aganyi, A. A. (2016). Assessing the Impact of Retained Profit on Corporate Performance: Emprical Evidence from Nigeri Mills Company, Calabr-Nigeria. European Journal of Business and Innovation Research, 4(1), 36-47.
Begovic, S. V., Momeilovic, M., & Tomasevic, S. (2014). The Enterprise Creditworthiness Evaluation - By Z" Score Model. Economic Themes, 52(2), 184-196.
Bei, Z., & Wijewardana, W. (2012). Financial leverage, firm growth and financial strength in the listed companies in Sri Lanka. Social and Behavioral Sciences, 40, 709-715.
Brown, D. T., James, C. M., & Mooradian, R. M. (1994). Asset sales by financially distressed firms . Journal of Corporate Finance, 1(1), 233-257.
CEICdata. ( 2018). Malaysia Bursa Malaysia: No of Companies: Total. Retrieved July 23, 2018, from https://www.ceicdata.com/en/malaysia/bursa-malaysia-number-of-listed-companies/bursa-malaysia-no-of-companies-total
Chadha, S., & Sharma, A. (2015). Capital Structure and Firm Performance: Emprical Evidence from India. SAGE Journal, 19(4), 295-302.
Chidiebere, M., Ekwe, & Inyiama, O. I. (2014). Revenue Reserves and Financial Performance in the Brewery Industry: Evidence from NIgeria. Applied Economics and Finance, 1(2), 117-131.
Culata, P., & Gunarsih, T. (2012). Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indoneisan Stock Exchange. Journal The Winners, 13(1), 40-49.
Cuong, N., & Thang, N. (2015). Firm Characteristics and Capital Structure Decision: Evidence from Seafood Processing Enterprises in the South Central Region of Vietnam. Research Journal of Finance and Accounting, 6(8), 69-84.
Dada, F. B. (2015). The Pecking Order Theory: Evidence from Listed Firms in Nigeria . International Finance and Banking, 2(2), 72-84.
Ezeoha, A. E. (2008). Firm size and corporate financial-leverage choice in a developing economy: Evidence from Nigeria. The Journal of Risk Finance, 9(4), 351-364.
Foo, V., Jamal, A. A., Karim, M. R., & Ulum, Z. K. (2015). Capital Structure and Corporate Performance: Panel Evidence from Oil and Gas Companies in Malaysia. International Journal of Business Management and Economic Research, 6(6), 371-379.
Gameel, M., & El-Geziry, K. (2016). Predicting Financial Distress: Multi Scenarios Modeling Using Neural Network. In
In-Text Citation: (Manual, Lee, Rashid, & Basirduddin, 2019)
To Cite this Article: Manual, V. S., Lee, D., Rashid, S. Z. A., & Basirduddin, R. (2019). A Study on Effect of Capital Structure on the Financial Distress of Non-Financial Companies Listed in Bursa Malaysia Stock Exchange (KLSE). International Journal of Academic Research in Business and Social Sciences, 9(6), 428–450.
Copyright: © 2019 The Author(s)
Published by Human Resource Management Academic Research Society (www.hrmars.com)
This article is published under the Creative Commons Attribution (CC BY 4.0) license. Anyone may reproduce, distribute, translate and create derivative works of this article (for both commercial and non-commercial purposes), subject to full attribution to the original publication and authors. The full terms of this license may be seen at: http://creativecommons.org/licences/by/4.0/legalcode
