THE DEBT STRUCTURE AND FIRM CHARACTERISTICS OF TOP 50 COMPANIES IN MALAYSIA
DOI:
https://doi.org/10.35631/AIJBES.829042Keywords:
Capital Structure, Debt Heterogeneity, Debt Structure, Firm CharacteristicsAbstract
This study examines the debt structures of the top 50 non-financial companies in Malaysia and investigates how these specific debt instruments associate with firm characteristics. This study is essential because, firstly, a simple debt ratio does not consider the potential conflicts of interest among different groups of debt holders and how these conflicts may shape debt structure choices (Colla et al., 2020) and secondly, a simple debt ratio fails to capture the changes in debt structure when the company takes up a new debt or retires the old one (Rauh & Sufi, 2010). The Malaysian capital market further provides a unique perspective due to the prevalent usage of Islamic debt as an alternative for debt financing. The descriptive analysis reveals that subordinate bonds are excluded due to their empirical absence and capital lease, under MFRS 16, is used as a strategic tool to preserve liquidity and financial slack. There is a decline in long-term borrowing from 2022 to 2025, accompanied by a substantial rise in sukuk utilisation. This sector-specific inclination towards sukuk was driven by the adoption of the SRI-Linked Sukuk Framework in 2022, allowing companies to use Islamic debt for general corporate purposes while securing low-cost funding. The correlation results indicate that Tobin-Q and ROE are negatively associated with short-term debt instruments. This strongly corroborates the pecking order theory; profitable companies prioritise internal retained earnings over external debt. Simultaneously, credit lines have a positive correlation with asset tangibility, supporting the trade-off theory in which fixed assets function as collateral to secure tax-shield advantages from liabilities.
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