Governance and Sustainability of Global Business Economics __________ * Corresponding author. E-mail: chowyeepeng@gmail.com © 2017 The Authors GCBER 2017 August 14-15, UPM, Malaysia Global Conference on Business and Economics Research Available online at www.econ.upm.edu.my Global Conference on Business and Economics Research (GCBER) 2017 14-15August 2017, Universiti Putra Malaysia, Malaysia Export Volatility and Corporate Financing Decisions in Australia: A Dynamic Panel Data Approach Chow Yee Peng a* , Junaina Muhammad b , Bany Ariffin Amin Noordin b , Cheng Fan Fah b a Putra Business School, Universiti Putra Malaysia, Malaysia b Faculty of Economics and Management, Universiti Putra Malaysia, Malaysia Abstract This paper investigates the influence of export volatility on corporate financing decisions of a sample of non- financial firms listed on the Australian Securities Exchange over the period 2004-2014. The GARCH model is employed to model export volatility. Using a dynamic panel data method, namely the robust two-step system GMM estimation procedure, the results show that export volatility has a significant negative effect on the financing decisions of Australian firms. The results also reveal that while long-term debt is affected by export volatility, similar observation does not hold for short-term debt. This indicates that Australian firms are chiefly concerned about the adverse effect of export volatility in the long-run. The results also provide evidence of the importance of accounting for the effects of the Global Financial Crisis. Policy implications are derived from the findings. Keywords: Corporate financing decisions, Capital structure, Leverage, Export volatility, System GMM, GARCH 1. INTRODUCTION Research on corporate capital structure has evolved over time since the introduction of the irrelevance theorem by Modigliani and Miller (1958). Initially, these studies are primarily focused on identifying firm-specific factors such as tangibility, firm size, growth opportunities, profitability and non-debt tax shields as determinants of corporate capital structure (Vo, 2017; Huang and Wang, 2015; Antonczyk and Salzmann, 2014; Dang, Kim and Shin, 2014; Ebrahim, Girma, Shah and Williams, 2014). More recently, some studies have also considered the influence of macroeconomic variables such as exchange rate, inflation rate, Gross Domestic Product (GDP), interest rate and fiscal policy as capital structure determinants (Zeitun, Temimi and Mimouni, 2017; Memon, Md Rus and Ghazali, 2015; Mokhova and Zinecker, 2014; Muthama, Mbaluka and Kalunda, 2013). Nevertheless, only a handful of research has examined the influence of macroeconomic volatility on firms’ capital structure (Caglayan and Rashid, 2014; Rashid, 2013; Baum, Stephan and Talavera, 2009; Hatzinikolaou, Katsimbris and Noulas, 2002). Moreover, past research on the association between macroeconomic volatility and capital structure has only considered certain sources of macroeconomic volatility such as volatility of inflation rate (Hatzinikolaou et al., 2002), volatility of real GDP (Caglayan and Rashid, 2014; Rashid, 2013) and volatility of interest rates (Caglayan and Rashid, 2014). However, to date, no research has been conducted on the influence of volatility of exports on firms’ capital structure choices.