Determinants of Capital Structure in Singapore’s Manufacturing Industry

DOI 10.14707/ajbr.160024

Parvinder Arora
S P Jain School of Global Management, Australia
Lalit Bagucandani
S P Jain School of Global Management, Australia
Ying Liu
S P Jain School of Global Management, Australia


This study investigates the relationship between firm value and capital structure, and its determinants in Singapore’s manufacturing sector from 2002-2011, and explores whether these determinants remain the same across different industry segments. Our result shows a strong correlation between debt ratio and firm value, and shows that most Singapore firms are also moving towards reducing debt in capital structure, which may be an indication that firms are trying to optimise their debt position to maximise the firm value, given the nature of Singapore’s economy. A fixed effects panel estimation model reveals that key determinants are tangibility (+ve), size (+ve), profitability (-ve) and non-debt tax shield (-ve), which are similar to those identified in earlier studies in the context of other economies. Tangibility and non-debt tax shield are common determinants across the industrial sector and consumer goods sector. The empirical results are mostly explained by trade-off theory.

Keywords: Capital Structure, Firm value, Singapore, Panel estimation model


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