A comparison study on financial behavior between industrial product and trade and services sectors in Malaysia. Does firm size matters?

Abstract

This study focuses on the sensitivity of different firm sizes on capital structure determinants within the Malaysian listed firms across two major sectors, i.e. Industrial product and trade and services during the pre and post the Global Financial Crisis in Malaysia. The dataset of 370 firms for the time period 2003 to 2012 were employed to check the robustness of these results. Based on pooled OLS, fixed-effect analysis and ANOVA, the findings of this study shows that the firm-level determinants, differ across sectors due to the nature or characteristics of each sectors. The result shows there is a relationship between capital structure determinants and leverage which is significantly influenced by the sector characteristics across different firm sizes become narrower. The impact of sectoral characteristics on leverage could be seen clearly as the model considers different firm sizes within each selected sector within different economic conditions in Malaysia. The chronology of the importance of each variable on leverage is appearing across selected sectors. The greater significant relationship between types of leverage and firm-level determinants respectively related to profitability, size, non-debt tax shield, tangibility and, liquidity differs across sectors. Nevertheless, the behavior of short-term and total debt on leverage determinants is similar, as total debt is highly controlled by the short-term debt mainly within medium-sized firms. The orientation between leverage and capital structure determinants varies across industrial product and trade and services sectors. The mechanism between capital structure determinants and leverage differs between and within medium-sized rather than large-size firms as the orientation is controlled mainly by the unique behavior of each sector. Finally, the applicability of capital structure theories such as the trade-off theory, the agency theory, and the pecking order theory survey separately across firm-sized, two sectors, and mentioned sub periods.