Abstract:

Study on capital structure of companies is abundant as it is reflecting the financial health of firm. Nonetheless, majority of them are either dealing with issues in developed countries or publicly listed companies only. We observed very limited studies on small and medium enterprises (SMEs) companies. Therefore, the objective of this study to examine the capital structure of companies in the Northern Corridor Economic Region (NCER) of Malaysia, comprising four states of Perlis, Kedah, Penang and Perak. In this study, we investigate how some specific firm characteristics determine the firm’s capital structure. Data has been derived from the financial statements of more than 15,000 Malaysian companies (SMEs) for year 2007. With very limited information can be extracted from the data collected from Companies Commission of Malaysia (CCM), we did restrict our model to have four independent variables only such as assets size (SIZE), profitability (PROF), liquidity (LIQ) and tangibility (TANG) and short-term debt (STD) as an dependent variable. By using the cross-sectional analysis, TANG has been the most important determinant, regardless of which model. This implies that potential financiers are very much concern about the risk facing each companies in NCER, the area in which the record firms generally enjoying low growth but facing high risk.