Costs of financing and diversification: evidence from Malaysia

Song S. (UiTM); Chu E.Y (USM)

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DC Field	Value	Language
dc.contributor.author	Song S. (UiTM)
dc.contributor.author	Chu E.Y (USM)
dc.date.accessioned	2023-11-06T02:45:01Z	-
dc.date.available	2023-11-06T02:45:01Z	-
dc.date.issued	2015-04
dc.identifier.issn	0128-7702
dc.identifier.other	ukmvital:77890
dc.identifier.uri	https://ptsldigital.ukm.my/jspui/handle/123456789/577517	-
dc.description	This study examines the extent of geographical diversification of Malaysian public listed firms and its effects on the costs of debt and equity financing. All companies, except those in the utilities and financial industries listed on Bursa Malaysia with segmental and foreign asset information available in Thomson One Banker database from 2008 to 2012, are used. Herfindahl index is used to compute the degree of diversification for firms, while weighted average costs of debt, equity and capital are used to estimate the costs of financing. The results show that less than half of the sample companies are geographically diversified. Although cost of capital is higher in diversified firms and it increases corresponding to the degree of diversification, confirming diversification in this country is not efficient. Debt has a much lower cost of financing compared to equity, which is consistent with the return tradeoff theory and tax shield effects. The debt ratio has the greatest influence on the weighted cost of debt, while P/E ratio has the greatest influence on the weighted cost of equity. It is also found that the relationships are contingent on the level of diversification of the firms. The more geographical diversification of the firms, the higher the cost of debt. As for the equity, the positive interactive coefficient between P/E and H-index shows that the more geographical diversification of the firms, the lower the cost of equity. Overall, the study concludes that Malaysian firms do not pursue efficient diversification as the cost of capital is higher for diversified firms.
dc.language.iso	en
dc.publisher	Universiti Putra Malaysia Press
dc.relation.haspart	Pertanika Journal of Social Sciences & Humanities
dc.relation.uri	http://www.pertanika.upm.edu.my/Pertanika%20PAPERS/JSSH%20Vol.%2023%20(S)%20May.%202015/12%20JSSH%20Vol%2023%20(S)%20May%202015_pg131-144.pdf
dc.subject	Cost of debt
dc.subject	Cost of equity
dc.subject	Costs of financing
dc.subject	Diversification
dc.subject	H-index
dc.subject	Malaysia
dc.title	Costs of financing and diversification: evidence from Malaysia
dc.type	Journal Article
dc.format.volume	23
dc.format.pages	121-130
dc.format.issue	Special Issue
Appears in Collections:	Journal Content Pages/ Kandungan Halaman Jurnal

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