CAPITAL STRUCTURE AND CULTURE IN MALAYSIA: A STUDY FROM ETHNICITY AND RELIGION PERSPECTIVES
Conceptualization from New Institutional Economics of Williamson (2000), the study looked at the issue of formal and informal institutional factors on financial decision making. This study first investigated the informal embedded culture such as “ethnicity and religion” that could influence the decision in a firm's capital structure. Secondly, the influence of culture informal institutions such as “Shariah and Non-Shariah compliant firms on capital structure decisions was investigated. Previous observations showed Chinese have high individualism and low uncertainty avoidance. Whereas, the Malay has low individualism and high uncertainty. These dimensions affect firm’s decision behaviour towards capital structure decision. This study aimed to confirm whether culture could explain trade-off and pecking order theory of capital structure decision. The study adopted a New Institutional Economics framework to understand how cultural divergence rationality interferes on caporal structure decision, where traditional finance only emphasises on economic responsibility that strives resources maximization. The study applied a longitudinal approach, where 187 sample firms of data covering a sample period from 2015 to 2019. The firms consisted of Bursa 90 best corporate governance firms awarded by Minority Shareholders Watch Group (MSWG) in 2017 and 2018; also randomly selected 97 PLCs of non-winner firms where both panels data balance in term of Board independence and Number of Shariah Compliance PLCs. A secondary data collection approach was adopted to obtain the CEO’s ethnicity and religion. Data from the extract of an annual report and Shariah-compliant list were adopted. This study made significant contributions to explain the relationships of informal (culture as ethnicity and religion) on capital structure; formal institution (policies as firm’s shariah compliance) on capital structure decision.