The Effect of Capital Structure and Ownership Structure on Firm Performance : A Test of Reverse Causality Hypothesis in Three ASEAN Countries

This study aims to investigate the effect of capital structure and ownership structure on firms' performance. In addition, the study also examines the existence of reverse causality hypothesis using the firm's level data from three industries of three ASEAN countries, i.e. Indonesia, Malaysia and Singapore. This study applies two stages estimation methods. First, we measure effect of capital structure and ownership structure on firm performance. The firm' performance is measured using a non-parametric approach of Data Envelopment Analysis (DEA). Second, we test the reverse causality hypothesis from firm performance to capital structure which is viewed by two competing hypotheses which are efficiency-risk and franchise-value hypothesis. Findings from this study reveal that in general, the firm's capital structure positively and significantly affected firm's performance, except for Indonesian case. In addition, there is positive effect of ownership concentration on firm performance. Finally, results from this study support the efficiency-risk hypothesis which indicates by a positive relation between firm's performance and capital structure