The Effects of Corporate Financing Decisions on Firm Value in Bursa Malaysia

Abstract

The primary objective of shareholders and financial managers is generally stated to be the maximization of shareholders' wealth by increasing the firm value. This research was undertaken to investigate the effect of corporate financing decisions on firm value. The research has been carried out using the panel data procedure for a sample of 256 firms from 9 sectors listed on Bursa Malaysia during the period 2000-2015. The study uses Tobin's Q representing firm value for the dependent variable. The corporate financing was measured by leverage (short-term debt to total assets, long-term debt to total assets, total debt to total assets and total debt to total equity) and debt maturity (long-term debt to total debt). Short-term debt to total assets and long-term debt to total assets has a positive significant relationship to firm value. This finding is consistent with the view that leverage and dividends mitigate agency costs of free cash flow problems, therefore, increasing firm value. Total debt to total assets affects firm value negatively. This proves that although there are benefits of debts, there is also the cost of debts. The cost of debt financing arises from the increase in the probability of bankruptcy. Firm value does not depend on the length of debt maturity.

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