Does Corporate Diversification Induce Financing Choice?

  • Wan Mohd Nazri Wan Daud Universiti Sultan Zainal Abidin
  • Rusliza Yahaya Universiti Pendidikan Sultan Idris
  • Norlia Mat Norwani Universiti Pendidikan Sultan Idris
  • Farah Amalina Md Nawi Universiti Sultan Zainal Abidin
Keywords: Corporate diversification, capital structure

Abstract

This paper sets out to examine the effect of business diversification strategy on capital structure in Malaysia. The study segregates the firms into related and unrelated firms based on segmentation of Standard Industry Classification Code. It involes 76 public listed firms in Bursa Malaysia from 1994 to 2012. This research uses static panel data to determine the credible association between diversification strategy and choice of financing. The authors find that period fixed effect with seemingly unrelated regression produce better results to explain the relationship between independent and dependent variables. The results demonstrate that there is insignificant relationship between diversification strategy and capital structure. Robustness check on pre and post crisis data generate similar output. The potential contribution of this work lies in offering empirical evidence to test the previous held assumption that there is a significant relationship between corporate expansion and financing decision done by firms. Future research should explore the possibility by using international firms to investigate the association between those variables.

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Published
2017-12-01
How to Cite
Wan Daud, W. M. N., Yahaya, R., Mat Norwani, N., & Md Nawi, F. A. (2017). Does Corporate Diversification Induce Financing Choice?. International Business Education Journal, 10, 31-42. https://doi.org/10.37134/ibej.vol10.4.2017