1 ISSN: 2162-6359 International Journal of Economics and Management Sciences Vol. 1, No. 3, 2011, pp. 01-07 MANAGEMENT JOURNALS managementjournals.org DEBT STRUCTURE FOR MALAYSIAN CONSTRUCTION COMPANIES: EVIDENCE FROM PANEL DATA ANALYSIS Zahariah Sahudin 1 , Wan Mansor Wan Mahmood 2* , Fathiyah Ismail 3 , Faridah Pardi 4 , Anidah Aziz 5 and Maizatul Akmal Sahudin 6 1 Faculty of Business and Management, Universiti Teknologi MARA Melaka, Malaysia 2 * Corresponding Author, c/o. Department of Finance and Islamic Banking, Faculty of Business and Management, Terengganu Universiti Teknologi MARA Terengganu, Malaysia, E-mail: dwanmans@tganu.uitm.edu.my 3 Universiti Teknologi MARA Terengganu, Department of Finance and Islamic Banking Faculty of Business and Management, Terengganu 4 Faculty of Business and Management, Melaka, Universiti Teknologi MARA Melaka, Malaysia 5 Faculty of Business and Management, Melaka, Universiti Teknologi MARA Melaka, Malaysia 6 Institut Aminuddin Baki, Ministry of Education, Genting Highland, Malaysia ABSTRACT The main objective of this paper is to examine whether firm’s size, growth opportunity, and firm’s reputation affect the debt level (leverage) of the construction companies in Malaysia. The study uses the data from ten selected Malaysia’s construction companies for the period from 2001 until 2008. Using the panel data technique, the estimation results show that size of construction companies has a strong significant positive relationship to the firm’s leverage. The finding is consistent with the previous findings that firm’s size adds huge information in explaining the level of debt. The results also suggest that company’s leverage is positively affected by firm’s reputation. On the other hand, growth opportunity has inverse relationship with leverage, indicating that high leverage would retard the growth of firms. Keywords: Leverage, Construction companies, Growth opportunity, Size, Malaysia JEL Classification : G32; C35 1. INTRODUCTION The study on capital structure has a long history. It has started more than forty years ago following the famous seminar work of Modigliani and Miller (M&M) (1958). M&M in their findings suggest that, in a perfect financial market, where there is no taxes and transaction costs, a firm‟s value will depends solely on its level of returns and risk of its future cash flows. What it means is that a firm is not too concerned whether to use internal fund or different forms of external fund in financing their investment because a firm‟s value is unrelated by its choice of financing. Since then the studies in this area have interest many researchers in different economic setting. Harris and Raviv (1991) for example, survey the theoretical literature that explain the capital structures in developed economies and prove that, in general, the assumptions underlying M&M proposition are not fulfilled. In other related study due to Padron, et al (2005), who declare that combination of internal and external financial resources in company liability has generated much controversy over the years. It seems that prolong debate on the relevancy of the topic will far from conclusive. As such continued interest on the topic among academician justifies further study of a company‟s financial decisions that determine debt level. In general, any companies regardless of the size typically employ both debt and equity financing. In the world with uncertainties, creditors normally are unwilling to provide financing without protection provided by equity financing. Therefore, financial leverage is the amount of debt financing that pays a fixed return in a company‟s capital structure.