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Corporate Choice Between Straight Debt And Convertible Debt In Malaysian Capital Market

Malaysia capital market financing is developing along with the economy. It is aimed to meet the expanding financing needs. This study is interested to examine the firm specific characteristics that determine corporate choice between straight debt and convertible debt. 136 debt offerings are ident...

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Main Author: Khaw, Lee Hwei
Format: Thesis
Language:English
English
Published: 2008
Subjects:
HG Finance
Online Access:http://etd.uum.edu.my/340/1/Khaw_Lee_Hwei.pdf
http://etd.uum.edu.my/340/2/Khaw_Lee_Hwei.pdf
http://etd.uum.edu.my/340/
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spelling my.uum.etd.3402013-07-24T12:06:47Z http://etd.uum.edu.my/340/ Corporate Choice Between Straight Debt And Convertible Debt In Malaysian Capital Market Khaw, Lee Hwei HG Finance Malaysia capital market financing is developing along with the economy. It is aimed to meet the expanding financing needs. This study is interested to examine the firm specific characteristics that determine corporate choice between straight debt and convertible debt. 136 debt offerings are identified as the sample for the study, consisting of 107 straight debts and 27 convertible debts from year 2001 through 2007. Nine predetermined explanatory variables namely tax consideration, debt ratio, tangibility, firm size, growth opportunities, profitability, net operating cash flow (NOCF), interest coverage and board of listing are analysed by using binary logistic regression.Tax consideration is proxied by non debt tax shield and debt tax shield in which they are regressed separately. This study also introduces two additional explanatory variables i.e. interest coverage and board of listing. Initially, only two explanatory variables are found to be statistically significant i.e. debt ratio and growth opportunities, denoted by market-to-book ratio. Subsequently, the predictive quality of each equation is examined and found that there is an existence of multicollinearity. As a result, corrective analysis is presented. It illustrates that non debt tax shield; debt ratio and firm size are statistically significant. These results explain that tax consideration, debt ratio and firm size influence the corporate choice when deciding between straight debt and convertible debt. It is reported that firms with higher non debt tax shield are more likely to issue straight debt which is in contrast to the tradeoff theory. This shows that firms in Malaysia are also utilising the potential tax benefit from non debt item such as depreciation in addtion to tax deductible interest payment. Therefore, the empirical results from this study do not completely conform to the tradeoff theory. As for debt ratio, the finding is consistent with the implications of the financial distress and tax benefits hypotheses in which firms with higher debt ratio have a tendency to issue equity-like instrument, i.e. convertible debt. Conversely firms with lower debt ratio would issue straight debt. Results also show that firms with larger firm size are more likely to issue straight debt whereas firms with smaller firm size are more likely to issue convertible debt. This postulates a positive relation between firm size and debt which is also consistent with tradeoff theory since larger firms have been shown to have lower bankruptcy risk and relatively lower bankruptcy cost. In addition to the above results, it is discovered that non debt tax shield is more appropriate to represent tax consideration in the Malaysia capital market instead of debt tax shield.This study also introduces two additional explanatory variables i.e. interest coverage and board of listing of companies in Bursa Malaysia. However, both variables are insignificant, thus they could not explain the choice between straight debt and convertible debt. 2008-04-24 Thesis NonPeerReviewed application/pdf en http://etd.uum.edu.my/340/1/Khaw_Lee_Hwei.pdf application/pdf en http://etd.uum.edu.my/340/2/Khaw_Lee_Hwei.pdf Khaw, Lee Hwei (2008) Corporate Choice Between Straight Debt And Convertible Debt In Malaysian Capital Market. Masters thesis, Universiti Utara Malaysia.
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Electronic Theses
url_provider http://etd.uum.edu.my/
language English
English
topic HG Finance
spellingShingle HG Finance
Khaw, Lee Hwei
Corporate Choice Between Straight Debt And Convertible Debt In Malaysian Capital Market
description Malaysia capital market financing is developing along with the economy. It is aimed to meet the expanding financing needs. This study is interested to examine the firm specific characteristics that determine corporate choice between straight debt and convertible debt. 136 debt offerings are identified as the sample for the study, consisting of 107 straight debts and 27 convertible debts from year 2001 through 2007. Nine predetermined explanatory variables namely tax consideration, debt ratio, tangibility, firm size, growth opportunities, profitability, net operating cash flow (NOCF), interest coverage and board of listing are analysed by using binary logistic regression.Tax consideration is proxied by non debt tax shield and debt tax shield in which they are regressed separately. This study also introduces two additional explanatory variables i.e. interest coverage and board of listing. Initially, only two explanatory variables are found to be statistically significant i.e. debt ratio and growth opportunities, denoted by market-to-book ratio. Subsequently, the predictive quality of each equation is examined and found that there is an existence of multicollinearity. As a result, corrective analysis is presented. It illustrates that non debt tax shield; debt ratio and firm size are statistically significant. These results explain that tax consideration, debt ratio and firm size influence the corporate choice when deciding between straight debt and convertible debt. It is reported that firms with higher non debt tax shield are more likely to issue straight debt which is in contrast to the tradeoff theory. This shows that firms in Malaysia are also utilising the potential tax benefit from non debt item such as depreciation in addtion to tax deductible interest payment. Therefore, the empirical results from this study do not completely conform to the tradeoff theory. As for debt ratio, the finding is consistent with the implications of the financial distress and tax benefits hypotheses in which firms with higher debt ratio have a tendency to issue equity-like instrument, i.e. convertible debt. Conversely firms with lower debt ratio would issue straight debt. Results also show that firms with larger firm size are more likely to issue straight debt whereas firms with smaller firm size are more likely to issue convertible debt. This postulates a positive relation between firm size and debt which is also consistent with tradeoff theory since larger firms have been shown to have lower bankruptcy risk and relatively lower bankruptcy cost. In addition to the above results, it is discovered that non debt tax shield is more appropriate to represent tax consideration in the Malaysia capital market instead of debt tax shield.This study also introduces two additional explanatory variables i.e. interest coverage and board of listing of companies in Bursa Malaysia. However, both variables are insignificant, thus they could not explain the choice between straight debt and convertible debt.
format Thesis
author Khaw, Lee Hwei
author_facet Khaw, Lee Hwei
author_sort Khaw, Lee Hwei
title Corporate Choice Between Straight Debt And Convertible Debt In Malaysian Capital Market
title_short Corporate Choice Between Straight Debt And Convertible Debt In Malaysian Capital Market
title_full Corporate Choice Between Straight Debt And Convertible Debt In Malaysian Capital Market
title_fullStr Corporate Choice Between Straight Debt And Convertible Debt In Malaysian Capital Market
title_full_unstemmed Corporate Choice Between Straight Debt And Convertible Debt In Malaysian Capital Market
title_sort corporate choice between straight debt and convertible debt in malaysian capital market
publishDate 2008
url http://etd.uum.edu.my/340/1/Khaw_Lee_Hwei.pdf
http://etd.uum.edu.my/340/2/Khaw_Lee_Hwei.pdf
http://etd.uum.edu.my/340/
_version_ 1644276137762750464
score 13.211869

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