Determining the optimal capital structure is one of the foremost popular issues in corporate finance and it is one of the most important financing decisions that need to be made by financial managers. A wrong financing decision could affect the performance of the company as well as diminishing the shareholder’s return thus can lead to bankruptcy. Therefore, it is the responsibility of financial managers to ensure that conscious steps must be taken in order to avoid making wrong financing decision which could lead the company to bankruptcy. This study aims to examine the determinants of capital structure decisions of Malaysian banks. This study used secondary data and the data was obtained from the ORBIS Database by Bureau van Dijk for forty three (43) Malaysian Banks from the period of 2013 to 2016. This study uses profitability, liquidity and bank size as independent variables and banks’ leverage as dependent variable. Three hypotheses were developed and the findings show that liquidity and bank size are important determinants of capital structure decisions of Malaysian banks since they have significance influence on leverage. However, profitability is found to have no significant impact on the capital structure of banks in Malaysia. In addition, the findings show that liquidity is the most influential determinants that influence capital structure of Malaysian banks.
