A Study on Effect of Capital Structure on the Financial Distress of Non-Financial Companies Listed in Bursa Malaysia Stock Exchange (KLSE)

Abstract

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.