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Determinants of the Capital Structure of the Oil and Gas Industry in Malaysia: The Moderating Role of Earnings Volatility

Author

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  • Maran Marimuthu

    (Department of Management and Humanities, Universiti Teknologi PETRONAS (UTP), Seri Iskandar 32610, Perak Darul Ridzuan, Malaysia)

  • Hana Halini Hamzah

    (Department of Management and Humanities, Universiti Teknologi PETRONAS (UTP), Seri Iskandar 32610, Perak Darul Ridzuan, Malaysia)

  • Romana Bangash

    (Institute of Management Sciences (IM|Sciences), Peshawar 25000, Pakistan)

Abstract

This paper examines the relationship between firm-specific factors and the capital structure of the oil and gas (O&G) industry in Malaysia.. In addition, this paper adds to the literature by investigating the moderating effect of earnings volatility on the relationship between firm-specific factors and capital structure. Random effect models with cluster-robust standard errors were used to analyze this relationship. Using the secondary data from 30 O&G firms listed on the main market of Bursa Malaysia collected between 2010 and 2019 (10 years), the results show that profitability, asset tangibility, liquidity, and firm size significantly impact the capital structure of the O&G industry in Malaysia. However, growth opportunities, non-debt tax shields, and firm age had no significant impact. In addition to this, earnings volatility significantly moderated the relationship between asset tangibility and leverage. In short, when earnings volatility acts as a moderating variable, the relationship between asset tangibility, which is otherwise positive without moderation, turns negative. This study is useful for policymakers in the O&G industry in Malaysia and will help their managers to decide on capital structure for sustainable growth.

Suggested Citation

  • Maran Marimuthu & Hana Halini Hamzah & Romana Bangash, 2023. "Determinants of the Capital Structure of the Oil and Gas Industry in Malaysia: The Moderating Role of Earnings Volatility," Sustainability, MDPI, vol. 15(24), pages 1-13, December.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:24:p:16568-:d:1294526
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    1. Mohd Haris Abdul Rani & Muhammad Afiq Adam Mohamad Zamzuri & Mohammad Khalis Sirajasharifudeen Mohd Noor Sirajajudeen & Fitra Syafeeqa Syaheezam, 2024. "Viability and Challenges of Energy Transition Policies on the Oil and Gas Industry in Malaysia," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(12), pages 3727-3737, December.

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