Does Financial Leverage Matter for Companies Survival

This paper investigates the relationship between the determinants and financial leverage of the public listed companies in Malaysia. A total of 152 surviving publicly listed companies in the Kuala Lumpur Stock Exchange (KLSE) were selected from year 2000 to 2015 (16 years), after filtering from the total of 474 companies. The descriptive statisticsand panel data analysis by using fixed effect model have been applied. This study applies four determinants as independent variables, namely asset tangibility, growth opportunities, profitability and liquidity, and one controlvariable is firm size. The financial leverage is measured by the short term debt ratio, long term debt ratio and debt acting as the dependent variables. The findings reveal that all determinants have strong negatively significant relationship with short term debt ratio. Meanwhile, three determinants show significant and negative correlation to the debt ratio, except asset tangibility. This study corroborates majority surviving companies prefer to use internal sources as priority for financial leverage decisions only then external sources in order to sustain their performance

Keywords:

financial leverage , determinants , surviving company , Trade off Theory , Pecking order Theory