Is there an optimal financial structure? : some evidence from Singapore listed companies.

Abstract

In this study , we investigated the influence industry class , market forces and size have on the capital structure of firms listed on the Stock Exchange of Singapore Mainboard Through our research , we hope to contribute to the teaching and research of finance as well as to help managers in designing a capital structure that would maximize their firm’s value .

Our analysis involved common equity and total assets figures of 70 firms for the 10-year period from 1983-1992 . Common equity ratios (Common equity/ Total assets) computed are then used for testing our 3 hypotheses .

We performed One-way Anova for each of our hypothesis . As this test requires us to make assumptions regarding the normality and homogeneity ofvariances of our samples , we introduced a non-parametric test ( Kruskal-Wallis test ) to relax these assumptions .

Our results indicate that there is some evidence to support the theory that industry class does influence capital structure decisions . On size and market conditions, however, we found no evidence to support that these factors do have an influence on capital structure strategies . In all, this study suggests that for the case of Singapore companies , there is no one optimal capital structure . Firms’ capital decisions tend to be influenced solely by industry classification, and their capital structure does not change even though their firm size and market conditions surrounding them may have changed .