Author(s): Erdilyn L. Carino, Judith A. Teano
Researchers have attempted to measure the relationship between capital structure and firm performance. However, only a few empirical studies have explored whether the capital structure is a relevant factor that creates value for the firm. Hence, this study investigated whether capital structure decisions are relevant to attain the desired outcome on the firm’s market value. The study considered the 20-property sector firms listed on the Philippine Stock Exchange. To analyze the relationship of the capital structure to the firm value, the panel data regression was used with a span of five years from 2013 to 2017 using interest-bearing debt-to-equity ratio and the market price per share (MPPS) as proxy variables. The statistical estimation involving simple ordinary least squares, fixed effects model, and random effects model showed that capital structure is significant and negatively associated with the firm’s value. The result implies that capital structure decisions are relevant to management’s decision-making since it affects the firm’s value. The management needs to be more cautious in using high gearing capital structure because it can potentially decrease the firm’s MPPS. The study brings significant knowledge in the accounting and finance industry in which capital structure is considerably important for evaluation in the decision-making process of the management.