The Determinants of Capital Structure: Analysis of Real Estate Investment Trust (REITs) and Properties Companies Listed in Bursa Malaysia - UUM Electronic Theses and Dissertation [eTheses]

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1 THE DETE RMINANTS O F CAPITAL STRUCTURE:

ANALYSIS O F RE AL EST ATE I NVES TMENT TRUST (REITs) AND PRO PERTIES CO MPANIES LIST ED I N B URS A

MAL AYS IA

By

HUSNIZAM HOS IN

Diss ertati on Sub mitted to the Oth man Yeop Abdul lah Graduate School of Busin es s,

Cen tre for Graduate S tudies, Universi ti Utara Malays ia In Partial Fulfill ment of th e Requi rement for the Mas ter of

Sci ence

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2 PERAKUAN KERJA KERTAS PROJEK

(Certification of Project Paper)

PERAKUAN KERJA KERTAS PROJEK (Certification of Project Paper)

Saya, mengaku bertandatangan, memperakukan bahawa (I, the undersigned, certified that)

HUSNIZAM BIN HOSIN (807272)

Calon untuk Ijazah Sarjana

(Candidate for the degree of) MASTER OF SCIENCE (FINANCE)

telah mengemukakan kertas projek yang bertajuk

(has presented his/her project paper of the following title)

THE DETERMINANTS OF CAPITAL STRUCTURE: ANALYSIS OF REAL ESTATE INVESTMENT TRUST (REITS) AND PROPERTIES

COMPANIES LISTED IN BURSA MALAYSIA

Seperti yang tercatat di muka surat tajuk dan kulit kertas project (as it appears on the title page and front cover of the project paper)

Bahawa kertas projek tersebut boleh diterima dari segi bentuk serta kandungan dan meliputi bidang ilmu dengan memuaskan.

(that the project paper acceptable in the form and content and that a satisfactory knowledge of the field is covered by the project paper).

Nama Penyelia : DR. MOHD ‘ATEF BIN MD YUSOF (Name of Supervisor)

Tandatangan : ______________________________

(Signature)

Tarikh : 23 JULY 2012

(Date)

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3 PE RMISSIO N TO USE

In pres enting thi s dissert ation in part ial ful fillm ent of t he requi rement for a post graduate degree from Universiti Ut ara Mal a ys ia, I agree that the Universit y Librar y m ake a freel y avail abl e for ins pecti on. I furt her agree t hat permis si on for cop ying of this di ss ert ati on i n an y m anner, in whole or in part, for schol arl y purpos e ma y be granted b y m y s upervis or or, i n t hei r abs ence b y the Dean of Ot hm an Yeop Abdullah Graduate School of Bus ines s.

It is unders tood that an y cop ying or publi cat ion or use of this diss ert ati on or parts thereof for financi al gai n shall not be given to me and to Uni versi t i Utara M ala ys i a for an y s chol arl y us e whi ch ma y be m ade of an y mat eri al from m y dis sertation.

Reques t for permissi on t o cop y or m ake other us e of m at eri als in this diss ertat ion, in whol e or in part should be address ed t o:

Dean of Othm an Yeop Abdull ah Graduat e School of Bus iness Universiti Ut ara M al a ysi a

06010 UUM Sint ok Kedah Darul Am an

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4 ABSTRAK

Struktur m odal merujuk kepada bagaim ana sesuat u perus ahaan atau perbadanan mem bi ayai as setn ya s am a ada m el alui gabungan beberapa ekuiti, hut ang at au s ekuriti hibrid. Ian ya t erdiri daripada hut ang j angka masa panjang, saham keut am aan dan nil ai bers ih. Ia juga dapat dit ent ukan dengan m engam bil berapa ba n yak s eti ap jenis pem bia yaan kewangan seti ap s yarikat atau perbadanan yang mem egang peratusan bagi seti ap jeni s pembia yaan kewangan.

Keban yakan s yari kat at au perbadanan m endapat dana m elal ui ekuiti at au hutang. Kaji an ini di l akukan bagi mengenal pasti pen entu struktur modal bagi s yari kat perlaburan hart anah (R EITs ) dan s yarikat hart anah ya ng tel ah dis enaraikan di papan ut ama Burs a Mal a ys ia. Dengan m enggunakan t eori t rade off dan t eori pecki ng order s ebagai t eori lat ar dan asas, 54 s yarikat t el ah di analisi s.

Dat a t el ah di kumpulkan selama 10 t ahun berm ula dari tahun 2001 – 2010. Leveraj telah digunakan sebagai pemboleh ubah bersandar manakal a peluang pert umbuhan, keuntungan, s aiz s yari kat, keket araan, kecairan dan ketidakt entuan sebagai pem bol ehubah tidak bers andar. Berdas arkan kaji an dan analisis yang dij alankan, didapati bahawa keuntungan, s aiz s yari kat , keket araan, keti dakt entuan s yari kat dan kecai ran m erupakan penent u st rukt ur modal bagi leveraj bagi s yarikat perl aburan hart anah di M ala ys ia.

Ia m embuktik an bahawa s yarikat yang kurang m enguntungkan, bes ar, lebih ket ara, kurang m enent u dan kurang kecairan menghadapi tahap l everaj yang ti nggi .

Katakun ci : St ruktur Modal, Leveraj , Am anah P erl aburan

Hart anah

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5 ABSTRACT

Capit al st ructure refers to the wa y a corporati on finance i ts ass ets through s om e com bi nati on of equit y, debt or h ybri d securiti es. It is prim aril y com pri ses of long t erm debt , preferred stock and net worth. It also can be quanti fi ed b y taking how much of each t ype of financing a compan y holds as a p ercent age of all its fi nancing. Most of the com pani es rai se funds b y equit y or debt. T hi s st ud y w as set out t o focus on t he determi nants of capit al st ructure for the properti es and real est at e investm ent t rust (RE ITs) companies that listed i n t he Burs a Mal a ysia. B y usi ng trade off and pecki ng order theori es as t heoreti cal background, 54 sample fi rms were anal yz ed.

The data was coll ected for a 10 year ti me period (2001 – 2010).

Leverage was used as dependent variabl e and six m arket variabl es were used as independent vari abl e for the anal ysis ; growth opportuniti es, profi t abili t y, s ize of the firm, t angi bilit y, volatilit y and li qui dit y. R es ult of mult ipl e linear regres sion found that, profit abil it y, size of the fi rm, tangi bilit y, volatilit y and l i quidit y were det erminant s of capit al struct ure of R eal Est at e Investment Trust (RE ITs ) in Mal a ysi a. It appears t hat l es s profit abl e, larger, more t angi bl e, l ess vol atil e and l ess li quid fi rms are m ore l ikel y to have hi gher l everage level .

Keywords : C apit al S tructure, Leverage, Real E state Investm ent

Trust (RE ITs)

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6 ACKNOWLE DGE MENT

“In the name of ALLAH, The Most Benevolent and The Most Merciful”

All prais es to al mi ght y ALLAH, the m ost m erci ful and the most benevol ent for givi ng me the opportunities in compl eting thi s diss ert ati on. It would be i mpos sibl e for m e to spent ti me t o com plet e thi s dissertation without the grace and hel p of ALLA H S.W.T.

I am greatly indebted to Dr. Mohd „Atef bin Md Yusof whose excellence in s upervisio n and pl a ys a bi g rol e i n inspi red m y work.

Without his unti ri ng encouragem ent, suggest ions, ideas and comm ent s throughout thi s work, t his diss ert ati on could not b e com plet ed on tim e.

I al so would l ike to conve y m y deepest gratitude and indebted to staff in UUM Kual a Lumpur Ci t y C ampus, li brarian of Northern Universit y of Mal aysia, Sint ok, Kedah, librari an Bank Negara

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7 Mal a ys ia and Bursa Mal a ysi a for their co -operation and help throughout the durati on of t his res earch.

I dedicat ed this research to m y belo ved parent s and for thei r endles s support and underst anding and also to the rest of m y fam ili es for thei r help and encouragem ent. Be yond a simpl e thank you, I want them to know that I reall y appreciat e what they had done t o m e.

I wish to express m y deepes t grat itude t o all m y fri ends , who shared t heir valuabl e experi ences, tim e and commitm ent . W ithout thei r pati ence, t his research cannot be complet ed and the y are ver y dear to me.

Las t but not l east, I woul d like to t hank to ever yone t hat involved directl y or indi rectl y for their cont ribution, i nvaluabl e support and encouragem ent the y have pl ace on me. Without ever yone cont inued support , this res earch would not been t he sam e as present ed here.

Thank you.

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8 TABLE O F CONTE NTS

TITTLE PAGE i

CERTI FI CAT ION O F THESIS WO RK ii

PE RMISSIO N TO USE iii

ABSTRAK iv

ABSTRACT v

ACKNOWLE DGE MENT vi

TABLE O F CONTE NTS viii

LIST O F TABLE S xii

LIST O F FI GURE xiii

LIST O F ABB REVIATIO NS xiv

CHAPTER 1 – I NT RODUCT ION 1.1 Histor y of R eal Estat e Invest ment Trust (REITs) 1

in M al a ysi a 1.1.1 Devel opm ent of List ed P ropert y Trus ts 1

in M al a ysi a. 1.2 Background of the St ud y 8

1.3 Probl em Stat em ent 1.3.1 The Is sue 10

1.3.2 Probl em Stat em ents 10

1.4 Research Quest ions 11

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9

1.5 Res earch Objecti ves 11

1.6 Signi ficant of St ud y 12

1.7 Scope of Stud y 13

1.8 Li mit ation of St ud y 13

1.9 Chapter S umm ar y 15

CHAPTER 2 – LIT ERAT URE RE VIE W

2.1 Int roduction 16

2.2 Theories of C api tal Structure

2.2.1 The Trade-Off Theory 17

2.2.2 The Pecking Order Theor y 20 2.3 Previous Studi es

2.3.1 Leverage 21

2.3.2 Growt h Opport uniti es 22

2.3.3 Profit abilit y 26

2.3.4 Size of t he Firm 29

2.3.5 Tangibi lit y 34

2.3.6 Vol atilit y 37

2.3.7 Li qui dit y 38

2.4 Theoreti cal Framework 40

2.5 Ke y Concepts & the Expected Si gn b y t he Theori es 41

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10 CHAPTER 3 – MET HODOLO GY AND DAT A

3.2 Dat a C oll ection 45

3.3 Sampli ng Fram e 46

3.4 Sources of Dat a 46

3.5 Vari abl es and Meas urem ent

3.5.1 Dependent Variable 46

3.5.2 Independent Vari abl es 47

3.6 Res earch Desi gn 47

3.7 Dat a Anal ys is and Treatment

3.7. 1 Descript ive Anal ysi s 47

3.7.2 Ordinar y Least Squares (O LS) Regress ion Model 48 3.7. 3 Correl ati on Coeffi ci ent Anal ys is 49

3.8 H ypothesis St atem ents 50

CHAPTER 4 – ANALYSIS AND FINDI NGS

4.2 Descript ive Anal ysi s 53

4.3 Multipl e Linear R egressi on Model 56

4.4 Resul t Equation 65

4.5 Correl ati on Coeffi ci ent Anal y s is 69

4.6 Collinearit y St atist ics 71

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11

4.7 Durbin Watson 72

CHAPTER 5 – DIS CUSSIO NS AND RECOMME NDATIO NS

5.2 Dis cuss ions 74

5.3 Recomm endati ons 81

RE FE RENCES 83

APPE NDICES 87

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12 LIST O F TABLES

Table 1: Ke y concept s of t he vari abl es and the Expect ed 41 Sign b y t he Theori es

Table 2: Descript ive St atist ics of Vari abl es 53 Table 3: Mod el s umm ar y of Multipl e Linear of 56

Regression M odel

Table 4: Coeffi ci ent of M ulti ple Linear of R egres sion 59 Model

Table 5: Correl ati on Coeffi ci ent 69 Table 6: Collinearit y St atist ics for the Dependent 71

Vari abl es

Table 7: Durbin Wats on (Aut ocorrelati on) 7 2

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13 LIST O F FI GURE

Fi gure 1: Theoreti cal Framework 40

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14 LIST O F ABB REVI ATIO NS

Real Estate Investm ent Trus t REITs

Li st ed P ropert y Trust LP Ts

Securi t y C ommis sions SC

Perm odal an Nasional Berhad PNB

Capit aM all s M al a ysi a Trust CMMT

Trade Off Model TOM

Pecking Order Theory POT

Ordinar y Least Square OLS

Statist ical P ackage of S cience Social SPSS

Growt h Opport uniti es GROW

Profit abilit y PROF

Size of t he Firm S IZE

Tangibi lit y TANG

Li qui dit y LIQ

Vol atilit y VO L

Vari ance Influence Factors VIF

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15 CHAPTER 1:

INTRODUCTI ON

1.1 HISTORY O F RE AL EST ATE INVEST MENT TRUST (RE I Ts) Real est at e invest ment tru s t (RE ITs ) is one of the investm ent funds that desi gned to invest in several of real est at e properti es. It seems like a st ock or bond mut ual fund but for real est at e i nvest ment trust , the m one y provided b y the i nvestors is inves ted in an y of t he propert y t rusts . R eal est at e i nvestm ent trust (RE ITs ) i n M al ays ia is at an infant st age but nowada ys t he involvem ent and int erest of investors towards R EITS show an increase due to encouragi ng governm ent incenti ves and revi sed i n Securit ies Comm ission Guideli ne 2005 .

1.1.1 Devel op men t of l isted p rop erty trus ts i n Mal ays ia

Before year 2005, real estate investm ent trusts in M ala ys i a known as List ed Propert y Trust (LP T). The regul ator y fram ework for l ist ed propert y trust (LPT) in M al a ys ia was approved b y the C entral B ank of M ala ys i a in 1986, wit h the princi pal l egi slat ion governing thei r establishment and operation bei ng t he Compani es Act 1965 and t he Securiti es Indust r y Act 1983. Speci fic S ecurities Comm ission

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The contents of the thesis is for

internal user

only

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