The Relationship between Capital Structure and Firm Value: A Case Study of Listed Companies in the Stock Exchange of Thailand

Abstract

          This study aimed at identifying relationships between capital structure and firm value of listed companies in the stock exchange of Thailand tracing back for 5 years: from B.E. 2554 to B.E. 2558 for the number of 362 companies with 1,810 pieces of data through analyses of industrial groups and classification according to groups of industries. Regarding this, financial business groups were not included due to the fact that they had the capital structure different from other general businesses. For this research, the researcher measured the capital structure by using the total debt to total equity ratio, and measured the firm value by using Tobin’s Q as the calculating formula in accordance with Chung and Pruitt (1994). The controlled variables in this regard were: firm size, ability to make a profit, assets tangibility, and growth opportunity. Multiple Regression analysis was also adopted for this research to test the relationships. The findings revealed that there were negative relationships between the liabilities in the capital structure and the firm value. In other words, the companies with high liabilities in the capital structure would have low firm value. For the test results as classified according to groups of industries, the negative relationships were found in those for: industrial products, resources, and services. That is, if the companies within these three mentioned groups had high liabilities in the capital structure, it would result in their low firm value. In addition, it was found that there were negative relationships between the controlled variables in the aspects of: firm size and growth opportunity, and the firm value; however, there were positive relationships between the controlled variables in the aspects of: ability to make a profit and assets tangibility, and the firm value.