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Accounting Factors Affecting the Capital Structure in the Asian Economic Community

Matthias Nnadi

This paper investigates the accounting factors that affect capital structures in the ASEAN Economic Community consisting of listed firms in the primary stock markets in Indonesia, Malaysia, the Philippines, Singapore and Thailand. Capital structures are defined by total debt to capital and long-term debt to capital ratios. Tangibility, profitability, firm size, earnings per share and growth are used to study firm-specific effects. Moreover, interest rates and country dummy variables are included to observe country-specific effects in this region. The results suggest that tangibility, profitability and size are robust and consistent throughout the period. The significant positive relationship between growth and leverage can be explained by non-monotonic behavior. Managers’ financing decisions are based on the cost of financing rather than maintaining their high EPS. According to the results, trade-off theory explained most of the relationships with capital structure.