The relationship between capital structure and firms performance of Malaysian industrial product sector

Abstract

This study seeks to investigate the relationship between capital structure and performance of the industrial product sector companies listed in Bursa Malaysia during an eleven-year period (2000 to 2010). The problem statement is: Is there any relationship between capital structure and firm’s performance in the industrial products sector in Bursa Malaysia? Do the capital structure influence the performance achieved by the company? The study sample consists of 77 companies. The data was analyzed by using the Pearson correlation analysis. The result shows that there is a significant negative relationship between DAR with ROA and DER with ROE. These suggest that, increase in debt ratio will generate lower return and vice versa. Yet, recommendations based on findings are offered to improve certain factors such as considering using an optimal capital structure and future research should investigate other sectors in Bursa Malaysia.