International Research Journal of Finance and Economics ISSN 1450-2887 Issue 47 (2010) EuroJournals Publishing, Inc. 2010 http://www.eurojournals.com/finance.

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A Review of Optimal Capital Structure Determinant of Selected ASEAN Countries

Gurcharan S Financial Accounting & Audit Department, University of Malaya, Malaysia E-mail: gurcharan@um.edu.my Tel: +603 7967 3809 Abstract Capital structure studies had mainly focused on firms in developed countries and little attention is given on how firms in developing and emerging market decide on its capital structure strategy. Therefore with a sample of 155 main listed companies from four selected ASEAN stock exchange index-links components for the period from 2003 to 2007, this study found that profitability and growth opportunities for all selected ASEAN countries exhibit statistical significant with inverse relationship with leverage. Whereas non-debt tax shield has significant negative impact on leverage mainly for Malaysia index link companies only. Firm size shows a positive significant relationship for Indonesia and Philippine index link companies. As for the country-effect factors; stock market capitalization and GDP growth rate show significant relationship with leverage while bank size and inflation indicate insignificant impacts on leverage. These determinants that influence the developing counties are almost similar and are as predicted by existing theories of capital structure.

Keywords: Capital structure; Leverage; Firm-specific and Country-specific factors; ASEAN

1.0. Introduction
For the past fifty years after the influential irrelevance theory of Modigliani and Miller (1958) on capital structure, academicians have debated rigorously on the capital structure theory and had even moved on looking at the determinants of firms capital structure choices with frictions such as agency signalling costs (Heinkel, 1982; Poitevin, 1989), bankruptcy (Ross, 1977), taxes (Leland and Toft, 1996), institutional and historical characteristics of national financial systems (La Porta et al., 1997, 2006; Rajan and Zingales, 2003), but the understanding of the determinants of national and international capital structure is still limited and vague (Aggarwal and Jamdee, 2003). In the early years, firms in United States were the primary source of such study and the coverage extended to Europe and Japan in mid of 1980s (Kester, 1986; Rajan and Zingales, 1995; Cornelli et al., 1996). In the aftermath of the Asian financial crisis in 1997, efforts were focused on emerging countries to shed some light on the factors that caused the turmoil in the region. Despite of this attempt, there have been a limited work done on the Asian region mainly because of the constraints on corporate financial data in the region (Fan and Wong, 2002; Deesomsak et al., 2004; Driffield et al., 2007). Undoubtedly, there is also insufficient evidence on how theories formulated for firms operating in the major developed markets can be applied to firms outside these markets coupled with differential

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in institutional and legal frameworks. Consequently, incomprehensive conclusions and puzzling questions are left either partially or completely unanswered in the area of international capital structure. In view of the above constraints this study will analyse the determinants of capital structure in four countries of the ASEAN members, namely Malaysia, Indonesia, Philippine and Thailand. The countries are selected due to their emerging status among the ASEAN counterparts and for the common attributes shared in its accounting practices, corporate governance and corporate control. The exclusion of other countries is due to the difference in market attributes (Singapore being developed market) and also due to the immaturity of the stock markets (Brunei, Cambodia, Lao, Myanmar and Vietnam). First a comparison is made on corporate leverage decisions between developing countries. This is followed by observing the factors that affect individual countries capital structures and examining if the prediction of conventional capital structure models improves by just knowing the nationality of the company. The remainder of the paper proceeds as follows: Section two will review the main theoretical framework such as country-specific factors (macroeconomics); and firm-specific determinants affecting capital structure. Section three provides the research methodology along with the description of the variables, data structure and the analysis techniques. In section four, the results is presented and discussed followed by section five concluding the study.

2.0. Literature Review

The Modigliani-Miller (MM) theorem (1958) first formed the basis for modern thinking on capital structure where assuming in a perfect capital market (no transaction or bankruptcy costs; perfect information); firms and individuals can borrow at the same interest rate; no taxes; and investment decisions aren't affected by financing decisions. However, there is a fundamental difference between debt financing and equity financing in the real world with corporate taxes and dividends paid to shareholders; commonly recognized as interest tax shield (Graham, 2000; MacKie-Mason, 1990). The compromise is represented in the Trade-off Theory of capital structure which indicates that the decision of a company to choose how much debt and equity financing that is required is based on the balancing of the costs and benefits of each form of funding. There is an advantage to finance through debt (interest tax shield benefit) but do need the consideration for the costs of financial distress including bankruptcy costs of debt and non-bankruptcy costs. Therefore the empirical relevance of the trade-off theory is still been questioned (Frank and Goyal, 2003). On the other end, Miller (1977) and Graham (2000) argue that the tax savings obtained do seem large enough and certain while the deadweight bankruptcy costs seem minor. However firm managers or insiders are assumed to possess private information about the characteristics of the firm's return stream or an investment opportunity which gives raise to the asymmetric information that are present and one preference of financing, either being from internal source, heavily debt based or financing with a view of maximising the shareholders' wealth. The most current and comprehensive work on international capital structure are being work by De Jong et al., (2008) who studied the roles of firm in relation to the capital structure around the world that observed the roles of firm- and country-specific determinants and work by Deesomsak et al., (2004) and Booth et al., (2001) who studied the determinants of Capital Structure as an evidence from the Asia Pacific region. In De Jong et al. (2008), it was found that firm-specific determinants (firm size, asset tangibility, profitability, firm risk and growth opportunities) on leverage differ across countries, while prior studies implicitly assume equal impact of these determinants. Although they concur with the conventional direct impact of country-specific factors on the capital structure of firms, they do show that there is an indirect impact. This is because country-specific factors also influence the roles of firmspecific determinants on leverage. According to Deesomsak et al. (2004), capital structure decision of firms is influenced by the environment in which they operate, as well as firm-specific factors. The financial crisis of 1997 also found to have a significant but diverse impact on firms capital structure decision across the region.

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Eight firm-specific determinants that were studied were tangibility, profitability, firm size, growth opportunities, non-debt tax shield, liquidity, earnings volatility, and share price performance whereas seven country-specific variables, namely the degree of stock markets activity, the level of interest rates, the legal protection of creditors rights, ownership concentration, and three country dummies were used. Similarly in Booth et al. (2001), they analyze capital structure choices in ten developing countries, being India, Pakistan, Thailand, Malaysia, Turkey, Zimbabwe, Mexico, Brazil, Jordan, and Korea. The macroeconomic variables used were the stock market value/GDP, liquid liabilities/GDP, real GDP growth rate, inflation rate and Miller tax term and the tax rate, business risk, asset tangibility, size, return on assets and market-to-book ratio were the firm specific variables applied. It was found that the variables that are relevant for explaining capital structures in the United States and European countries were similar as in developing countries, despite the profound differences in institutional factors across these developing countries. The difference in the development of banks versus financial markets has long been perceived as a possible determinant of capital structure (Mayer, 1990; and Rajan and Zingales, 1995). This indicator of banking or market development may cause differences in the accessibility to external financing by firms which implies that as equity markets become more developed, they become a viable option for corporate financing and firms make less use of debt financing. Therefore countries with a relatively large banking sector are more likely to be associated with higher private sector debt ratios. Previous studies appear to agree on the negative relation between the size of stock market and leverage level (Demirguc-Kunt and Maksimovic, 1998 and 1999; Booth, et al. 2001 and Giannetti, 2003). Similarly the growth rate of GDP is an important macroeconomic variable. If investment opportunities in an economy are correlated, then there should be a relationship between the growth rate of individual firms and the growth rate of the economy. Thus, the aggregate growth rate may serve as a control variable in cross-country comparisons of firm financing choices. Since economy-wide growth opportunities (GDP growth rate) are closely correlated with firms growth opportunities, firms with large growth opportunities tend to use less debt in optimality as argue by Myers hypothesis (1977). Another important country-specific institution that may affect corporate financial decision is the inflation effect because debt contracts are generally nominal contracts and high inflation is likely to discourage lenders from providing long-term debt (Fan et al., 2006). Corporate performance element has also been identified as a potential determinant of capital structure. The tax trade-off models predict that profitable companies will employ more debt since they are more likely to have a high tax burden and low bankruptcy risk. On the other hand, the pecking order theory of finance proposed by Myers (1984) prescribes a negative relationship between debt and profitability on the basis that successful companies do not need to depend so much on external funding. Higher growth opportunities provide incentives to invest sub-optimally, or to accept risky projects that expropriate wealth from debt holders (Deesomsak et al. 2004). This raises the cost of borrowing and thus growth firms tend to use internal resources or equity capital rather than debt. In addition, high growth firms whose value comes from intangible growth opportunities do not want to commit themselves to debt servicing as their revenue may not be available when needed. Therefore, an inverse relationship between growth opportunity and leverage is predicted. According to DeAngelo and Masulis (1980), non-debt tax shields are substitutes for interest or debt-related tax shields; hence non-debt tax shield should empirically show a negative sign in relation to the leverage ratios. Accordingly to the trade-off theory, a negative relationship between leverage and non-debt tax shields is postulated. Similarly, DeAngelo and Masulis (1980) argue that the marginal corporate savings from an additional unit of debt decreases with increasing non-debt tax shields. In contrast, Moore (1986) argues that firms with substantial non-debt tax shields should also have considerable collateral assets which can be used to secure debt. It has been argued above that secured debt is less risky than unsecured debt. Therefore, from a theoretical point of view, one could also argue for a positive relationship between leverage and non-debt shield. The trade-off theory postulates a positive relation between firm size and debt, since larger firms have been shown to have lower bankruptcy risk and relatively lower bankruptcy cost. Bigger firms could have easier access to capital

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markets and borrow at more favourable interest rates, perhaps because they are more diversified in their investments and therefore have a lower risk of default than smaller firms (Smith and Watts, 1992). This suggests a positive relationship between firm size and leverage. In line with above discussion, two major types of variables are observed in this study being the country-specific and firm-specific determinants, in analyzing the impacts on firms leverage choice. Four factors from each determinant is also observed which were the country-specific (size of the banking industry and stock market, gross domestic product growth rate and inflation) and firm-specific (profitability, growth opportunities, non-debt tax shield and firm size).

3.0. Methodology
3.1. Variable Selection First the relative importance of factors affecting the capital structure of each individual country in the sample is observed through variables that influence the firms debt position in the context of country and firm levels. This is essential in providing the insight to a firm's policy for both short-term debt and long-term debt. Rajan and Zingales (1995) indicated that total debt could overstate the level of leverage because total debt do includes accounts payable that may be used for transaction purpose rather than for financing. Furthermore the choice of either using the book value or market value is also crucial therefore the measure of leverage based on the market value of equity, rather than the book value, was used as it gives more tentatively consistent results (Wiwattanakantang, 1999; Suto, 2003 and Deesomsak et al. 2004). Meanwhile profitability is deemed to have a negative effect on leverage (Titman and Wessels, 1988) and it is measured by normalising the firms earnings before interest and taxes (EBIT) with total assets (De Jong et al., 2008). As for the growth opportunities there are two different arguments about how growth rate affects leverage. Since growth can enhance the firms' borrowing ability in the future, this would suggest that growth increases firms assets, and therefore higher leverage. Gupta (1969) suggests that a company with rapid growth will tend to finance the expansion with debt. But Myers (1977) argue that firms with higher growth rates tend to use less and or short term debt in their capital structure to reduce the agency costs. Titman and Wessels (1998) also note that firms usually attempt to invest in suboptimal projects in order to transfer wealth from bondholders. Since costs related to this type of agency problem is higher in rapidly growing firms, then firms use less debt in order to avoid this cost. For this reason, growth rate should have a negative relationship with debt. Therefore it would be appropriate to define firms growth as the total assets minus book equity plus market equity over book total assets (or market-to-book value of total assets). Similarly the non-debt tax shield is measured by the depreciation expense over book value of total assets during the sample period. Meanwhile the firm size is expected to have a positive impact on leverage (Rajan and Zingales, 1995) it is then better defined as the natural logarithm of total revenue. Furthermore Demirguc-Kunt and Maksimovic (1999) and Booth et al. (2001) reported a positive sign for the relation between the banking sector/GDP and debt to asset and therefore measured by the ratio of assets of domestic banks to GDP figures. As for stock market factor, Giannetti (2003) found a negative correlation between size of stock market and leverage level and the variable of size of equity market used in this study is the stock market capitalization divided by GDP (STKMKT) (De Jong et al., 2008; Joeveer, 2006; Booth et al., 2001). As for the the GDP growth rate it is defined as the average of annual real GDP growth rate (unit in percentage) of each country, averaged through 20002007 based on the source from the Euromonitor International. Finally as for the inflation effect on leverage it is found to have mixed results on capital structure. Homaifa et al. (1994) found a positive relationship between leverage and inflation as inflation reduces the real cost of employing debt via the erosion of the repayment of the principal. However, the studies by Booth et al. (2001) and Fan et al. (2006) show that insignificant relationship between leverage and inflation but leverage is positively related to economic development.

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The sampling design is based on the index-linked to the stock exchange of the four selected ASEAN countries as shown in Table 1. Four countries representing ASEAN are selected, namely Malaysia, Indonesia, Philippines and Thailand. Data for leverage and firm-specific variables are collected from Bloomberg, Financial Times and Reuters database (all financial companies were excluded). Data on country-specific variables are collected from a variety of sources, mainly World Development Indicators and Financial Structure Database of the World Bank and Euromonitor International which covers for a period from 2003 to 2007 (on firms with at least five years available data were used). This timeframe is selected to gauge the aftermath effect of the Asian financial crisis in 1997 on the capital structure decisions. This finally leaves 155 companies meeting all the requirements.
Table 1: List of Stock Exchanges in Selected ASEAN Countries
% of index from total market capitalization 70% 70% 54% 80%

Total Market Capitalization Country Index (in USD million) Malaysia Bursa Malaysia KLCI 100 983 325,290 Indonesia Indonesia SE LQ-45 45 383 211,693 Philippine Philippine SE PSEi 30 242 103,007 Thailand Thailand SE SET100 100 523 197,129 Source: Annual report and statistics 2007, World Federation of Exchanges; Thomson Reuters Stock Exchange (SE) Number of component Total listed companies

An ordinary-least-square regression is first employed to determine whether relations exist between leverage ratio and the determinants. Next two regression equations are used to test the firmspecific determinants (PROFIT, GROWTH, NDTS and SIZE) and later add the country-specific determinants (BANK, STK, GDP and INF) to the first equation. The model of regression equation is as follows: Y1 = + 1Profit+ 2Growth+ 3 NDTS+ 4SIZE+
Y2 = + 1Profit+ 2Growth+ 3 NDTS+ 4SIZE+ 5 Bank+ 6 STKMKT+ 7GDPRATE 8 INF + +

Where Y representing the leverage, n being coefficient of explanatory variables of and PROFIT = Profitability; GROWTH = Growth opportunities; NDTS =non-debt tax shield; SIZE = firm size; BANK = size of banking industry; SKTMKT = size of stock market; GDPRATE = GDP growth rate; and INF = annual inflation rate and being the error term The first regression equation is to determine the firm-specific factors influencing leverage in the individual countries whereas the second regression is to examine the country effect on the leverage. This approach is consistent with previous studies as in Deesomsak et al. (2004) and Song and Philippatos (2004).

4.0. Results
Table 2a - 2c below presents the descriptive statistics on the leverage ratios for each selected ASEAN countries. The sample means, medians, maximums, minimums, standard deviations, skewness, kurtosis and the Jarque-Bera statistics along the p-value are reported in respect to firm specific and country specific.

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Table 2a: Descriptive Statistics of Leverage Ratio

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MALAYSIA INDONESIA PHILIPPINE THAILAND Mean 0.24 0.20 0.28 0.30 Median 0.19 0.15 0.21 0.27 Maximum 0.87 0.86 0.81 0.89 Minimum 0.00 0.00 0.00 0.00 Std. Dev. 0.20 0.20 0.22 0.20 Skewness 0.84 1.51 0.91 0.50 Kurtosis 2.85 5.36 2.85 2.54 Jacque-Bera 38.81 70.72 10.39 13.26 Chi-square at 95% significance 5.99 5.99 5.99 5.99 Note: Leverage ratio is market debt-to-total assets ratio which is computed by total debts over market value of total assets (total assets minus book value equity plus market value equity)

Table 2b: Descriptive Statistics of Firm-specific Independent Variables

MALAYSIA PROFIT GROWTH NDTS SIZE Mean 0.11 1.98 0.04 5.89 Median 0.09 1.40 0.03 5.85 Maximum 0.84 20.79 0.44 9.05 Minimum -0.64 0.40 0.00 2.49 Std. Dev. 0.12 2.04 0.05 1.31 INDONESIA PROFIT GROWTH NDTS SIZE Mean 0.23 3.57 0.06 6.57 Median 0.18 2.37 0.05 6.47 Maximum 1.03 22.29 0.23 8.82 Minimum -0.03 0.62 0.02 4.21 Std. Dev. 0.19 3.76 0.04 1.00 PHILIPPINE PROFIT GROWTH NDTS SIZE Mean 0.31 1.80 0.06 5.94 Median 0.16 1.60 0.06 6.03 Maximum 2.71 5.48 0.18 8.71 Minimum -0.04 0.52 0.00 3.27 Std. Dev. 0.49 1.12 0.04 1.51 THAILAND PROFIT GROWTH NDTS SIZE Mean 0.12 2.06 0.06 5.68 Median 0.10 1.52 0.05 5.50 Maximum 0.49 9.72 0.29 10.49 Minimum -0.31 0.40 0.00 1.82 Std. Dev. 0.11 1.40 0.05 1.41 Note: PROFIT is operating income over total assets. GROWTH is the growth opportunities, calculated by market-tobook total assets. NDTS is the non-debt tax shield, calculated by depreciation over total assets. SIZE is natural logarithm of total revenue.

Table 2c: Descriptive Statistic of Country-specific Determinants

BANK STKMKT GDPRATE INF Mean 0.86 0.86 0.06 0.04 Median 0.94 0.68 0.06 0.03 Maximum 1.26 1.52 0.07 0.13 Minimum 0.17 0.14 0.04 0.01 Std. Dev. 0.37 0.50 0.01 0.03 Skewness -0.87 0.08 0.18 1.73 Kurtosis 2.20 1.34 1.87 6.18 Source: World Development Indicators and Financial Structure Database of the World Bank, Euro monitor International

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From Table 2a above, the leverage ratios for the four selected ASEAN members are relatively moderate with average ratio ranging from 0.20 to 0.30. Thailand has the highest leverage ratio with 0.30, followed by Philippine (0.28), Malaysia (0.24) and Indonesia (0.20) with standard deviation in the range of 0.20. As for the skewness, all leverage ratios are skew to the right, indicating that the most of the leverage ratios are on the lower range. On the kurtosis measure, all countries except Indonesia have kurtosis value of normal distribution pattern (value below three). Observing the formal test of normality (using Jacque-Bera), all leverage ratios show non-normality in the error term and hence transformation of square root is performed for the leverage variable. In terms of firm specific independent variables Table 2b shows the statistics of all independent variables such as profitability, growth opportunities, non-debt tax shield and firm size for the selected ASEAN countries. The ranking for profitability, which is computed by the value of operating income over total assets, from most profitable to least profitable is Philippine (0.31), Indonesia (0.23), Thailand (0.12) and Malaysia (0.11). As for the growth opportunities, measured by market to book of total assets, Indonesia has the highest having a mean of 3.57 mean follow by Thailand 2.06, Malaysia 1.98 and Philippine 1.80. As for the non-debt tax shield, being measured by depreciation expense over total assets, all countries have a ratio of ranging from 4 to 6 percent. As for the size, measured in natural logarithm of revenue, all countries have a means of approximately 5.68 to 6.57, which translated into revenue of approximately of USD300 to USD700 million. As for the country effect analysis (Table 2c) for the selected ASEAN countries, measured by the private credit by deposit money banks to GDP, has a mean of 0.86, stock market size (STKMKT), measured by stock market capitalization to GDP, mean of 0.86, GDP growth rate (GDPRATE) ranging from minimum 4 percent to 7.3 percent and annual inflation rate (INF) in annual growth percentage, ranging from 1 percent to 13 percent with mean of 4 percent. Next observing the outcome of the regression analysis, first the firm-specific determinants of capital structure on individual countries followed by the firm-specific determinants pooled for all countries including the country-specific are presented in the Table 3a 3c below.
Table 3a: Firm Specific Analysis of Determinants of Leverage
Variables Constant Profitability Growth opportunities Non-debt tax shield Size Malaysia 0.60 ** (11.30) -0.16 (-0.83) -0.04 ** (-3.25) -0.52 ** (-2.58) -0.01 (-0.85) 0.24 0.23 Indonesia 0.35 ** (3.29) -0.67 ** (-4.20) -0.01 (-1.33) -0.13 (-0.50) 0.03 * (2.09) 0.45 0.43 Philippine 0.72 ** (28.40) -0.05 ** (-2.81) -0.12 ** (-7.16) -0.03 (-0.11) 0.04 ** (6.40) 0.76 0.75 Thailand 0.78 ** (22.25) -0.48 ** (-4.18) -0.08 ** (-7.94) -0.19 (-0.79) -0.01 (-1.03) 0.57 0.56

R-squared Adj. R-squared Note: (i) Dependent variable is square root of leverage ratio (ii) * denotes significant at 5% level and ** denotes significant at 1% level (iii) Parentheses is the t-statistic

Table 3b: Country Effects Analysis of Determinants of Leverage

Variable CONSTANT PROFIT GROWTH NDTS SIZE BANK Coefficient 0.77 * -0.10 ** -0.05 * -0.70 * 0.01 0.06 t-Statistic 10.10 -2.51 -7.63 -4.95 1.14 1.38

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STKMKT -0.10 * GDPRATE -2.29 * INF -0.29 R-squared 0.35 Adjusted R-squared 0.34 Note: (i) Dependent variable is square root of leverage ratio (ii) * denotes significant at 5% level and ** denotes significant at 1% level -4.54 -2.69 -0.66

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Table 3c: Summary of Firm-specific Determinants

COUNTRIES LEVERAGE PROFIT Malaysia 0.24 0.11 Indonesia 0.20 0.23 Philippine 0.28 0.31 Thailand 0.30 0.12 Note: PROFIT=Profitability, GROWTH=Growth opportunities, NDTS= Non-debt tax shield, SIZE= Firm size GROWTH 1.98 3.57 1.80 2.06 NDTS 0.04 0.06 0.06 0.06 SIZE 5.89 6.57 5.94 5.68

Table 3d: Summary of Country-specific Determinants

DESCRIPTION BANK STKMKT Mean 0.86 0.86 Coefficient 0.06 -0.10 Probability 0.17 0.00 Note: BANK=Banking size, STKMKT=Stock market size, GDPRATE=GDP growth rate, INF=Inflation rate GDPRATE 0.06 -2.29 0.01 INF 0.04 -0.29 0.51

First the firm specific determinants tabulated in Table 3a above, the relationship between profitability and leverage is found to be negative as excepted for all countries; statistically significant for Indonesia, Philippines and Thailand but insignificant for Malaysia. The negative and significant result is consistent with the predictions of the pecking order theory, showing that firms prefer to use internal sources of funding when profits are high. In most previous studies (Rajan and Zingales, 1995; Booth et al., 2001; De Jong et al., 2008), they report a significant negative effect of profitability on leverage. Next looking at the growth opportunities, it has a negative relationship with leverage and is statistically significant for all countries with the exception of Indonesia. It is also consistent with Deesomsak et al. (2002) except De Jong et al. (2008) who found a positive relationship with the four countries. The negative relationship supports the predictions of the agency theory that high growth firms use less debt since they do not wish to expose themselves to possible restrictions imposed by lenders. As for the non-debt tax shield, inverse relationship with leverage was found for all firms in selected ASEAN countries. Only Malaysia firms show a statistically significant result on this variable and are consistent with previous study of Deesomsak et al. (2004). This negative association supports the tax-based model that suggests that the major benefit of using debt financing is corporate tax deduction. Therefore, firms that have higher non-debt tax shields are likely to use less debt. The relationship between size and leverage is ambiguous as Indonesia and Philippine give positive correlation whereas Malaysia and Thailand yield negative correlation. From the Table 3b, Indonesia and Philippine are found to have statistical significance results. In previous studies (Wiwattanakantang, 1999; Booth et al., 2001; Pandey, 2002 and Prasad et al., 2003), they did show similar significant relationship with a positive correlation. The trade-off and agency theories suggest that larger firms tend to have better borrowing capacity relative to smaller firms. Larger firms tend to be more diversified and fail less often, so size (computed as the logarithm of revenue) may be an

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inverse proxy for the probability of bankruptcy. If so, size should have a positive impact on the supply of debt. In Table 3b, two country-specific determinants (STKMKT and GDPRATE) show statistically significant (at alpha one percent) relationship with leverage. Even though the R-squared is 35 percent, the F-statistic of 50 indicating the four country-specific variables as group variables significantly influences the leverage. Bank size has insignificant relationship with leverage as banks are more prudent in lending after the financial crisis and this result is consistent with the finding by Fan et al. (2006). As for the stock market development, it can provide alternative source of funding to firms other than borrowing from banks or bond market. Hence stock market size does impact negatively with leverage. This finding is consistent with previous studies by Deesomsak et al. (2004) and Song and Philippatos (2004). GDP growth rate variable yields a negative impact on leverage and the coefficients are significant at 1% level. In contrast to Booth (2001), he found a positive correlation between real GDP growth rate and total debt ratio but negatively with long-term market debt ratio in developing countries. However in Song and Philippatos (2004) who study the OECD countries, the above relationship is negatively correlated. This finding indicates that in countries with relatively higher rate of economic growth, firms are using lower levels of debt to finance new investments. Inflation has yielded insignificant relationship with leverage and hence no conclusion could be deduced from this finding. As compared to the study by Homaifa et al. (1994), they find a positive relationship between leverage and inflation as the real cost of debt is reduced by the inflation effect. In contrast, the finding by Booth et al., (2001) in analyzing capital structure in ten developing countries has found insignificant relationship between leverage and inflation and this finding is consistent with the study by Fan et al. (2006) on thirty nine developed and developing countries.

5.0. Conclusion
The discussion on the summary of findings is subdivided into two subsections comprising firm-specific and country-specific determinants. The leverage ratio for the selected ASEAN countries was moderate, at the range from twenty to thirty percent of total assets. In summarizing the firm-specific determinants, Philippine firms have the highest return on asset, follow by Indonesia, Thailand and Malaysia. As for the growth opportunities, Indonesia rank highest comparing market to book value of total assets and other three countries have approximately 2 times market-to-book total assets. The nondebt tax shield (proxy is depreciation charge) for all countries range from four to six percent of total assets. As for the size, all firms have averaged revenue of USD300 to 700 million. The four countries yield different results in term of their coefficient and significant level between the independent variables (PROFIT, GROWTH, NDTS, SIZE) and dependent variable (LEVRATIO). As for the profitability (PROFIT), the inverse relationship with leverage is as expected but only statistically significant for Indonesia, Philippine and Thailand. This finding shows that higher profitable firms use less debt to finance their investment which means pecking order theory at work. Firms will use hierarchy of funds such as internal fund, follow by debt and equity. For the growth opportunities (GROWTH), a negative relationship with leverage is found for all countries and all show statistically significant results except Indonesia. This means that higher growth firms tend to use less debt signalling agency costs theory (asset substitution effect) is an important theory in developing countries. The trade-off theory is also justifiable in developing countries looking at the non-debt tax shield (NDTS)s negativity correlation with leverage. As non-debt tax shield has the cost-benefit effect on firms, higher non-debt tax shield will reduce the impact on debt. Lastly, firm size (SIZE) has ambiguous relationship with leverage where two countries show positive relationship (Indonesia and Philippine) and the other two show negative relationship (Malaysia and Thailand) but only the former show statistical significant.

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In analyzing the country-specific determinants, the means of banking size and stock market capitalization over GDP are both 0.86 and the selected ASEAN countries are growing at 6 percent annually for five years period. The average inflation rate is at 4 percent. This study finds that the selected country effect of STKMKT and GDPRATE have statistical significant relationship with leverage. Larger banking size (BANK) has insignificant effect on leverage and stock market development as alternative source of funding to debt gives negative impact on leverage. The real GDP growth rate (GDPRATE) has negative impact on leverage judging from the high correlation between firms growth and GDP growth rate. Due to the marginal differential of inflation rate in selected ASEAN countries, the inflation effect in reducing the cost of debt for the firm to borrow is at negligible level, hence rendering inflation (INF) as insignificant factor on leverage. Capital structure remains an important and significant issue for academicians and corporate managers. This area has been researched by many prominent scholars, namely Modigliani and Miller, Stewart Myers, Stephen Ross, Michael Jensen and William Meckling. However capital structure has been studied extensively in the developed countries but only few researches focus on developing countries. In this research, the main objective is to study capital structure in the context of selected ASEAN member states; Malaysia, Indonesia, Philippine and Thailand and to determine the factors that influence capital structure. As a concluding remark, this research finds that the factors that influence the developed and developing counties are almost similar and as predicted by existing theories of capital structure. However in acknowledging the influence of other pertinent factors like corporate governance, legal framework and institutional environment of the countries; capital structure decision is not only the product of firms own characteristics but also the macroeconomics environment in which the firm operates. As direction for future research, researcher can assess the real impact of Asian financial crisis by examining pre- and post-crisis period which will give indication of any changes in capital structure decisions. In addition, other important variables could be added besides the firms characteristics like corporate governance, legal framework and managers risk behaviour (in disciple of behaviour finance). It will also be interesting to explore the diversity of capital structure decisions in large, medium and small listed companies.

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