The Relationship of Capital Structure and Its Financial Performance

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UNIVERSITI UTARA MALAYSIA

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BWFF3013 CORPORATE FINANCE

(GROUP A)

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FIRST SEMESTER, SESSION 2016/2017

GROUP ASSIGNMENT:

CRITICAL JOURNAL ARTICLE REVIEW

(THE RELATIONSHIP OF CAPITAL STRUCTURE AND ITS FINANCIAL PERFORMANCE)

SUBMITTED TO:

DR HANITA BINTI KADIR @ SHAHAR

SUBMITTED BY:

NUR AMANINA BINTI MOHAMAD (231548)

AZERY BIN HANAFI (231894)

NURUL HUSNA BT MOHAMAD (234021)

NOR AIMI AMANINA BT KHAIRUL AMIN (234098)

SUBMISSION DATE:

13rd DECEMBER 2016

1. ABSTRACT

This examination looks at the effect of capital structure on firms' monetary execution in Pakistan, Nigeria, Malaysia, Sri Lanka and Kenya. Exponential summed up slightest square relapse is utilized to test the relationship between capital structure and firms' money related execution. The outcomes demonstrate that all the three factors of capital structure, Current Liabilities to Total Asset, Long Term Liabilities to Total Asset, Total Liabilities to Total Assets, adversely impacts the Earnings before Interest and Taxes, Return on Assets, Earning per Share and Net Profit Margin though Price Earning proportion indicates negative association with Current Liabilities to Total Asset and positive relationship is found with Long Term Liabilities to Total Asset where the relationship is inconsequential with , Total Liabilities to Total Assets. The outcomes likewise show that Return on Equity insignificantly affects Current Liabilities to Total Asset and Total Liabilities to Total Assets however a positive relationship exists with Long Term Liabilities to Total Asset. These outcomes, as a rule, prompt to the conclusion that capital structure decision is an essential determinant of budgetary execution of firms.

2.0 INTRODUCTION

Capital structure and its impact on the firm monetary execution and general esteem has been remained an issue of incredible consideration among budgetary researchers since the unequivocal research of (Modigliani and Miller, 1958) contending that under flawless market setting capital structure doesn't impact in esteeming the firm. This suggestion which is from Kenya, clarifies that estimation of firm is measured by genuine resources not, the mode they are financed. The effect of capital structure on company's money related execution remains an astounding issue among monetary researchers and corporate directors. As indicated by (Zeituni and Tion, 2007) corporate structure is firmly connected to money related execution. Prahalathan and Ranjani, (2012) predict that there is no relationship between capital structure and firm execution. Shahzad.et al. (2015) and Umar et al. (2012) demonstrate that capital structure adversely affect firms money related execution while Githire &Muturi (2015) indicate conflicting perspective.