The capital structure has a huge effect on the firm's results. Any erroneous
decisions to improve the financial structure could cause financial distress to the following
firms and may even lead to bankruptcy. Furthermore, the firm capital structure could
backfire and steer any firm to bankruptcy, causing the firm to have a negative effect on
firm performance if it is not utilized properly. The problem with the study lies in the
absence of clarity concerning the effect of capital structure on firm’s value, whereby the
managers must choose a suitable mixture of debt and equity for the firm to maximize its
value, and hence maximize the wealth of the shareholders. The capital structure of a firm
is a crucial factor that needed to be seriously considered by the management of firms to
ensure the firm performance. Therefore, the focus of this study is to ascertain the effects
of capital structure on firm performance in Malaysian construction companies. The
sample of this study comprises of forty-seven (47) firms listed in Bursa Malaysia
specifically in construction companies. The data are obtained from the annual reports for
three (3) years starting from the year 2016 to 2018. Correlation and regression are used to
test all the hypotheses that have been developed in this study. The capital structure
comprises of long-term debt, short-term debt, total debt and equity. Meanwhile, Return
on Equity (ROE) as the tool to measure the firm’s performance. This study found that
only equity have a positive relationship towards firm’s performance.
