There are number of theories on the capital structure and its relationship on firm performance. In this case, Modigliani-Miller (MM) theory could be considered as the foundation theory which stated that the firm value is not affected by its capital structure, which specifies that in the firm's value would appear to be independent of its capital structure in the non-existent of bankruptcy costs, transaction costs, asymmetric information or taxes (Modigliani & Miller, 1958). Nevertheless, this theory is revolved around limited assumptions of a perfect capital market that does not present in the current world. In order to fill in the voids of MM theory, three main theories are suggested, namely the trade-off theory, pecking order theory and agency theory. In other words, these theories intended to explain factors that influence the utilization of internal funds (i.e., profits) and external funds (i.e., debt and equity) in corporate financing. Trade-off theory suggested that the trade-off between the debt causing by tax benefits and the bankruptcy cost resulting the disproportionate appeal to debt help determine the optimal capital structure (Detthamrong et al., 2017). The pecking order theory, later on indicates that firms should follow a financing associated ranking. It promotes the appeal to internal rather than external resources and secure rather than unsecure securities (Mukhopadhyay & Chakraborty, 2017). On the other hand, the pecking order theory retain that a firm has no particular leverage ratio likely to maximize its value and that the leverage choice of leverage is the consequent of the information asymmetry prevailing in the market (Louhichi & Boujelbene, 2016). Concerning agency theory, it presents that an optimal capital structure may be decided by a slashing of costs emerging from agency problems arising between shareholders on one side and among shareholders and managers on the opposite (Shukeri et al., 2012). The idea of the theory holds in minimizing the costs related with the detachment of ownership and control.
Taking the current situation, although many studies have been conducted in other countries, there are very few study conducted with Malaysian case, especially when taking into account the logistics sector, since most of studies found are clustered around the financial sector. Therefore, this study is intended in providing an insight into the relationship between capital structure and firm performance in a typical corporate market. In addition, it provides evidence for testing the validity of financial theories in explaining the relationship between capital structure and firm performance in a transition and developing country like Malaysia.
In order to measure the firm performance of the logistics companies, a data search was conducted using Bloomberg Database and each company's annual report. From the data search, 12 companies are shortlisted. Firms with incomplete data are removed from the list, thus leading to only 8 companies. All companies incorporated in the study are Malaysian listed companies traded in exchanges and having complete data for the period of 2010 to...