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Mediation Effects of Firm Leverage in Malaysia: Partial Least Squares - Structural Equation Modeling

Author

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  • Nur Ainna Ramli

    (Faculty of Economics and Muamalat, University Sains Islam Malaysia, 71800, Bandar Baru Nilai, Negeri Sembilan, Malaysia,)

  • Gilbert Nartea

    (Lincoln University, Faculty of Commerce, Department of Accounting, Economics and Finance, 7647, Lincoln, Canterbury, New Zealand)

Abstract

In theory, capital structure determinant is a cause-effect model. We investigate the simultaneously of cause-effect framework on the impact of specific attributes on firm's financial performance through leverage which acts as a mediation variable. We use the partial least squares - structural equation modeling that capable of providing a greater understanding of the prediction for the construct relationship among each other with simultaneous techniques with only one time process (Chin, 1998). We endeavor to examine in a complex model that consists with 14 construct (LVs) and 33 indicators in Malaysia for the period from 1990 to 2010. The implication is that the Malaysian firms could attempt to choose less risky route, as Malaysia is recognized as a market-based oriented. In addition, we find that some attributes could influence the relationship to firm's financial performance by indirect effect (leverage). Thus, firms tend to act with partial action on their capital structure, which believe to attain a sustainable performance.

Suggested Citation

  • Nur Ainna Ramli & Gilbert Nartea, 2016. "Mediation Effects of Firm Leverage in Malaysia: Partial Least Squares - Structural Equation Modeling," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 301-307.
    • Handle: RePEc:eco:journ1:2016-01-39
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    References listed on IDEAS

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    Cited by:

    1. Ramli, Nur Ainna & Latan, Hengky & Solovida, Grace T., 2019. "Determinants of capital structure and firm financial performance—A PLS-SEM approach: Evidence from Malaysia and Indonesia," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 148-160.
    2. Rana Yassir Hussain Xuezhou Wen Rehan Sohail Butt Haroon Hussain Sikandar Ali Qalati Irfan Abbas, 2020. "Are Growth Led Financing Decisions Causing Insolvency in Listed Firms of Pakistan?," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 23(2), pages 89-115, November.
    3. Nur Ainna Ramli & Gilbert Nartea, 2017. "Interrelation between Economic Sectors, Capital Structure and A Firm's Financial Performance: The Indonesian Evidence," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 380-388.

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    More about this item

    Keywords

    Capital Structure; Partial Least Squares; Structural Equation Modeling; Mediation Effects;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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