Capital structure and performance of firms in Asean: The role of debt financing

Abstract

This study examines the relationship between debt financing and business performance across six ASEAN countries: The Philippines, Malaysia, Singapore, Indonesia, Thailand, and Vietnam. As a vital component of business funding, debt financing significantly impacts financial stability, growth, and profitability. The research analyzes how short-term and long-term debt structures influence key performance metrics, including return on equity (ROE) and return on assets (ROA), providing insights into how different financing strategies affect business outcomes in diverse economic environments. Using data from publicly listed companies from 2015 to 2023, the study reveals significant variations in debt utilization and its effects on business success. Firms in more developed economies, such as Singapore and Malaysia, tend to rely more on long-term debt, which correlates positively with higher profitability and stable growth. In contrast, businesses in developing nations like Vietnam and Indonesia exhibit a greater dependence on short-term debt, increasing the risk of financial instability and constraining long-term expansion. The findings underscore the importance of balanced debt strategies in mitigating financial risks while leveraging growth opportunities. Additionally, the study highlights how industry-specific factors, firm size, and equity ratios influence the effectiveness of debt financing. By emphasizing the need for tailored debt management strategies aligned with each country's economic and regulatory landscape, this research offers valuable insights for business managers, investors, and policymakers in the ASEAN region.