The level of capital expenditure generally varies by countries. It depends mostly on the stages of economic development of the countries (i.e., modern, developed, or underdeveloped countries) (Simos, 2006). In the developing countries, if the level of economic development is low, the capital expenditure is usually low. The higher level of capital expenditure reflects the greater level of investment in a country (Mansfield, 1988; Chen et al., 2003). The capital expenditure has also been linked directly to firm performance (McConnell and Muscarella, 1985). When managers unexpectedly increase or decrease their capital expenditure, they will give a positive or negative signal about the firm's available positive net present value projects (Trueman, 1986). It is due to the valuation of capital expenditure which is considered to be related to individual firm's growth. Additionally, the firms which have a higher (lower) change in capital expenditure than their industry average provide positive (negative) valuation of signal (Lev and Thiagarajan, 1993).
The variations in the capital expenditure are also strongly and positively associated with excess returns (Kerstein and Kim, 1995). The amount of capital expenditure is likely to be determined by internal cash flow and insider ownership (Griner and Gordon, 1995), which have sometimes given positive or negative impact on firms' growth. Moreover, the investment in capital expenditure can boost the level of gross national product of countries which have a greater level of investment. The greater level of investment of countries will reflect the advancement of economic growth (Dornbusch and Fisher, 1987).
The Institute for Economics Researchers at the University of Munich (Ifo) performed a survey on corporation executives from around the world in 2006. In accordance with the conclusion of that survey, corporations spent more on capital expenditure in 2006 rather than in the year of 2005, for instance, on a new technologies and structures that make the capital expenditure continually to grow since the development among consumption and investments are expected the expansion patterns of demand, production, productivity, and employment to establish, which will shape global economic growth during 2006-2007 (Simos, 2006).
Based on the Business Expectations survey of Limited Companies by the Department of Statistics (DOS) in Malaysia, there was a drastic increase in capital expenditure in the manufacturing companies from RM17 billion in 2003 to RM27.7 billion in 2005, followed by a decrease in 2006 of RM23 billion. This contributes significantly to the increase in Gross Domestic Product (GDP) from 45 percent in 2005 to 51 percent in 2006 (Economic Review, 2007). It can be said that the capital expenditure gives a significant contribution to the economic development in Malaysia.
The investment activities of the executives from the world's top-twelve markets based on capital expenditure, which is known as G-12, have a combined gross domestic products (GDP) expressed in US dollars that accounts for 84 percent of global output. They raise their capital expenditure in order to increase gross domestic product (Simos, 2006). It is found that the G-12 investment on capital expenditure in 2006 was higher than a year ago. As a result of the high speed global economic growth, the executives feel confident of the economic situation in the future.
Bromiley (1986) identifies that investment growth in a country might arise through corporate capital expenditure. It may also influence a firm's production decisions and strategic business plans at the corporate level. Corporate capital expenditure can be funded either by internal or external funding.
According to Myers and Majluf (1984), Park and Pincus (2000), Myers (2001), and Frank and Goyal (2003), various explanations of internal funds have been postulated. Firstly, internal funds provide managers not only with greater flexibility but also finance, which then result in faster implementation of the investment plans. On the other hand, managers often retain the option of raising funds externally in the future. This view is supported by Husnan (1997) who states that the external funding is more costly and less preferred as compared to the internal funding.
Second, internal fund may not involve extra costs, such as legal, accounting, and underwriting fees. Meanwhile, external fund might involve flotation costs (Smith, 1977). Third, internal funds might not be publicly available. There is asymmetric information between managers and investors about the firm's investment opportunities; if managers' information about their firms' investment plans were publicly available, the market may undervalue the firm's new shares relative to the value that would be assessed (Myers and Majluf, 1984; Myers, 1984). Therefore, firms that required relatively more external funding as compared to internal funding will have lower capital investment. According to Muller and Peev (2007) those firms with good investment opportunities and large internal cash flows can fund their investments in the company without resorting to the external capital market.
The issues of capital expenditure decision have been an interesting theme among researches due to the important link of capital expenditure in investment with strategic decision process in a corporate level of business. In addition, McConnell and Muscarella (1985) state that the capital expenditure also has impact on a company's performance. Numerous studies have attempted to explore concepts of the capital expenditure (e.g. Kuh and Meyer, 1957; Dusenberry, 1958; Jorgenson, 1963; Kuh, 1963; Jorgenson and Siebert, 1968; Grabowski and Mueller, 1972; and Elliot, 1973). Therefore, it is becoming more important to study issues of capital expenditure, especially the influential factors of capital expenditure decisions.
Investigation on factors influencing the capital expenditure has been continued to the present day. The developing body of literature has contributed to our understanding of the determinants of capital expenditure levels, for instance: works by Nair (1979), Berndt et al. (1980), Larcker (1983), Fazzari and Athey (1987), Fazzari et al. (1988), Waegelein (1988), Madan and Prucha (1989), and Gaver (1992). It might be due to the important issues between two existing theories of capital expenditure determination factors, which are the managerial hypothesis and pecking order hypothesis. Both theories supported that internal cash flow is an essential factor which influences the level of capital expenditure (Griner and Gordon, 1995). The managerial hypothesis view is that there is an opposite relationship between insider ownership and capital expenditure (Myers and Majluf, 1984; Sartono, 2001), yet the pecking order hypothesis argued there is no impact of insider ownership on capital expenditure (Griner and Gordon, 1995; Myers and Majluf, 1984). To justify the prevailing theories in Bursa Malaysia, further research is needed to support the arguments on the basis of empirical findings.
According to Park and Shenoy (2002), the aggregate capital expenditure has an immediate rather than long-term effect on bond issues. In the short run, an increase in aggregate bond issue may lead to a decrease in aggregate stock issues. In other words, an increase of capital expenditure may have impact on the stock issues. However, in the long-run, an increase in stock issues also leads to an increase in bond issues. This pattern suggests that capital expenditure and interest rate changes precede bond issues---if the capital expenditure increases, bonds would be a first financing choice, and equity is issued subsequently. The overall effect indicates that an increase in any type of financing will increase the future external financing.
The relationship between capital expenditure and free cash flow is first studied by Myer and Majluf (1984). Shin and Kim (2002) continually studied that relationship and they found that there is a positive relationship between capital expenditure and free cash flow. They also stated that the sensitivity of firms' investment to growth opportunities after size-adjusted is smaller for firms with high cash holdings (i.e., free cash flow) than for firms with low cash holdings. Moreover, firms with high cash holding invest more than firms with low cash holdings. If the capital expenditure is compared quarterly for the year, there is a difference between the first quarter capital expenditure and the fourth quarter capital expenditure in terms of company size-adjusted. The fourth quarter capital expenditure for large firms is significantly greater than the first quarter, but less efficient for large firms than for small and medium size firms. Less efficient for large firms because large firm tend to have more divisions and it is more difficult for headquarters to allocate capital and monitor expenditure efficiently, and large firms might have greater agency cost.
Furthermore, developing body of literatures has also showed empirical support in terms of the relationship between capital expenditure and future abnormal earnings. The study conducted by Johston (2005) and Kim (2001) demonstrates that there is a correlation between capital expenditure and future abnormal earnings. As predicted, the capital expenditure provides information that is positively associated with future earnings. However, inconsistent with Kim (2001) and Johston (2005) who found that there is no positive association between capital expenditure and future earnings because the magnitude of capital expenditure does not matter at the margin, as other factors, such as uncapitalized management/employee skills, are more important to future earnings.
A considerable amount of literature has been published on capital expenditure. One of these studies is about the determinant factors of capital expenditure that is internal cash flow (e.g., Myers, 1984; Myers and Majluf, 1984; Griner and Gordon, 1995; Sartono, 2001). Although these studies have established that internal cash flow is an important determinant of capital expenditure, they have presented equivocal arguments about the reasons. The disagreement emerges from two contradictory views about using concepts in managing corporate finance. For example, the conceptual frameworks of Pecking Order theory and Managerial Hypotheses. Both points of views are based on the role of manager as agent and the role of share holder as principal. The different views might lead to a conflicting conception about decision process in capital expenditure.
The conflict between managers and share holders could be explained further by several theories, such as agency theory (Keasey et al., 1997). Agency theory identifies potential agency problems within a company, which in turn affects corporate behaviour in different ways (Jensen and Warner, 1988). Shleifer and Vishny (1986) point out that the agency problem may arise between shareholders, as the owner, and other company shareholders based on the distribution of power within organization.
The two agency-based arguments have proposed the hypotheses namely 'Pecking Order' and 'Managerial' Hypotheses. According to the Pecking Order Hypothesis set forth by Myers (1984) and Myers and Majluf (1984), managers choose the level of capital expenditure that maximizes the wealth of current shareholders, regardless of the managers' ownership stake in the firm. Since an information asymmetry exists between managers and potential shareholders, managers are forced to utilize internal cash flow for capital investment as compared to external sources.
The Pecking Order Hypothesis supports that there is no significant relationship between capital expenditure and insider ownerships, because the managers' investment decisions do not depend on the level of ownership. It can be said that the Pecking Order Hypothesis attempts to promote the wealth of shareholders (Griner and Gordon, 1995).
According to the Pecking Order Hypothesis, the capital expenditure increases in line with the increase in the investment opportunity. Therefore, there is no conflict of interest (agency problem) between managers and principals in relation to the use of capital expenditure (Griner and Gordon 1995; Sartono, 2001).
In accordance with the Managerial Hypothesis, managers who have small stocks ownership in a firm tend to use internal cash flow in undertaking a higher level of capital expenditure in comparison with the level in which they are capable to maximize the current stockholders' wealth (Griner and Gordon, 1995). Agency theorists posit that managers usually tend to maximize their interests with regards to decision making process of capital expenditure. Therefore, they would prefer to choose internal cash flow for capital expenditure rather than paying dividend to the shareholders because external borrowing could expose the firm to bankruptcy risk, and simultaneously affect their position in the firm. Shareholders, on the other hand, would prefer external borrowing so that they can maximize their dividends.
The Managerial Hypothesis predicts that relationship between the level of capital expenditure and the insider ownership is negative. According to the Managerial Hypothesis, there might be a conflict of interest between managers and stockholders that lead to over-investment. In this condition, the managers try to increase their welfare by undertaking capital expenditure without taking into account of the stockholders' welfare, and also without considering current investment opportunity.
The work of Griner and Gordon (1995) demonstrates that both Pecking Order and Managerial Hypotheses support that internal cash flow is an important determinant of the level of capital expenditure. Both hypotheses show a different prediction in terms of the role of insider ownership. Based on Pecking Order Hypothesis, insider ownership has no effect on capital expenditure. However, based on Managerial Hypothesis the insider ownership has a negative effect on capital expenditure, whereby the higher the insider ownership, the lower or smaller the capital expenditure and vice versa.
The studies on the determinants of capital expenditure interpret the significance of internal cash flow in a Pecking Order framework but did not attempt to test this explanation against the managerial alternative (for example the works of Fazzari and Athey, 1987; and Fazzari et al.,1988). Furthermore, based on the Pecking Order Hypothesis, if the future investment opportunity is likely to have a good outcome, managers attempt to take that chance to increase shareholders' welfare.
Aggarwal and Samwick (2003) supported that investment might be able to increase managers' incentives. The findings noted that incentive from compensation investment might affect firm performance; therefore, there is tendency for the managers to have private benefits through increasing investment.
According to Griner and Gordon (1995), managers who rely on internal cash flow to finance capital expenditure are not motivated by conflicts of interest between managers and current shareholders. Rather, it was a consequence of information asymmetries between managers and potential new shareholders. It can be concluded that shareholders do not need to sacrifice their ownership to management in order to provide managers with incentives when making capital expenditure decisions. Stulz (1990) argues that due to asymmetric information, shareholders are not able to know precisely when free cash flows and over investment occur. Consequently, when internal cash flows (unobservable to outside investors) are high, managers are likely to over invest, and when the cash flows are low, the managers are likely to under invest because they cannot truthfully convince the market that they need new equity for projects.
On the basis of developing literature, this study aimed to further examine factors influencing capital expenditure decisions. Numerous studies have been done in regards to the determinant factors which affect capital expenditure, for instance the study by Griner and Gordon (1995), who conducted the research using data from New York Stock Exchange (NYSE) in United States of America and Sartono (2001), who had used the data from Jakarta Stock Exchange (JSE) in Indonesia. However, there are very few studies in existing literatures that have discussed the capital expenditure in Malaysian context. Thus, the current study attempts to test empirically the factors effect on capital expenditure decisions in Malaysian companies and examine empirically the conflicting predictions of the two hypotheses, namely the Pecking Order and Managerial Hypotheses.
I.2. Research Problems and Research Questions
Based on the explanations above, the research problems for this study are:
How do the internal cash flow, insider ownership, and investment opportunity influence the capital expenditure in the Malaysian context?
Which of these two hypotheses (Pecking Order or Managerial) is more dominant amongst the Malaysian listed companies?
Specifically, the research questions of this study are as follows:
Does the internal cash flow significantly influence capital expenditure?
Does the insider ownership significantly influence capital expenditure?
Does the investment opportunity significantly influence capital expenditure?
Is that influence appropriate with Packing Order or Managerial Hypothesis?
I.3. Objectives of the Study
The purpose of this study is to investigate the factors determining capital expenditure in the Malaysian context on the basis of the Managerial and Pecking Order Hypotheses. Further, the specific objectives of this study are:
To examine the influence of internal cash flow on capital expenditure;
To examine the influence of insider ownership on capital expenditure; and
To examine the influence of investment opportunity on capital expenditure.
The study proposes 3 hypotheses. To address the hypothesis statements, the researcher has designed equation models which predict impacts of independent variables (i.e. internal cash flow, insider ownership, and investment opportunity) on dependent variables (i.e. capital expenditure). The model is examined using multiple regression analysis and ordered logistic regression analysis. The model is analyzed using listed companies as the unit of analysis.
1.4. Justifications of the Research
Capital expenditure has become an important theme in financial management research in order to create future benefits. Capital expenditure reflects companies' spending to acquire or upgrade physical assets such as property, plant, and equipment. Effective decisions on capital expenditure of the company are likely to affect company's performance (McConnell and Muscarella, 1985). Moreover, an inappropriate decision of capital expenditure may have long-term impact on the company due to a large amount of total investments incurred.
Corporate capital expenditure is an important factor that influences decision in financial management. Essentially, at the macroeconomic level, capital expenditure is an important part of aggregate demand and gross national product, economic growth, and business cycles (Dornbusch and Fisher, 1987). Therefore, understanding the factors influencing capital expenditure is crucial in this current study. Additionally, at the microeconomic level, capital expenditure affects a firm's decisions (Nicholson, 1992) as well as their strategic plans (Bromiley, 1986). This view is supported by Kerstein and Kim, 1995; Bryan, 1997 who explained the information which is provided by capital expenditure that is positively associated with future earnings.
Research concerns with capital expenditure in the Malaysian context have received less attention by scholars and practitioners. Thus, this research also develops literature review in relation to factors influencing capital expenditure, which is trying to strengthen the theory of capital expenditure with its practice. Furthermore, in the developing countries such as Malaysia, empirical studies focusing on these issues are still at its infancy. Testing the hypotheses developed from literature will intentionally determine the phenomena of manager's behaviour in the Malaysian context.
1.5. Expected Contributions of the Research
One important contribution of the current research is to address the gap in the literature of factor determination in capital expenditure. The gap can be explained by several inconsistency findings between the Managerial and Pecking Order Hypotheses (e.g., Griner and Gordon 1995; Sartono, 2001). According to the Managerial Hypothesis, managers who have small stocks ownership in a company tend to use internal cash flow in undertaking a higher level of capital expenditure in comparison with the level in which they are capable to maximize the current stockholders' wealth. Based on this hypothesis the insider ownership has negative impact on capital expenditure, while according to the Pecking Order Hypothesis, managers choose the level of capital expenditure that maximizes the wealth of current shareholders, regardless of the managers' ownership stake in the firm. Therefore, in Pecking Order Hypothesis, the insider ownership does not have impact on capital expenditure.
Both hypotheses agree that internal cash flow is an important determinant of the level of capital expenditure. However, this determinant is differently implemented. The Pecking Order Hypothesis states that the manager prefers to use the internal cash flow to fund capital expenditure in order to increase the current shareholder wealth because there is no conflict of interest. On the contrary, in Managerial Hypothesis, the manager prefers to use internal cash flow to fund capital expenditure due to their own private interest.
In the previous studies, there are only two factors found to be affecting capital expenditure that is internal cash flow and insider ownership (e.g. Griner and Gordon, 1995; Satono, 2001). However in this research, there is a new variable affecting capital expenditure that is investment opportunity. The addition of this new variable as the determinant factor in capital expenditure is based on Myers (1984), who stated that investment opportunity affects financial resources, because the company will try to undertake the good opportunity in the investment for the future. This addition is also strengthened by Pao (2008) who stated that firms with higher investment opportunity have higher demand for capital to sustain their investment. Therefore, investment opportunity will also affect the capital expenditure.
Additionally, a proposed model is expected to clarify variables that might determine capital expenditure decision. These variables comprised of internal cash flow, insider ownership, and investment opportunity on the capital expenditure, especially in the Malaysian context. By understanding these variables, the decision makers are able to determine which variables are having dominant impact on the capital expenditure. Therefore, this thesis is expected to provide theoretical and practical contributions in terms of financial management and investment decisions by either investors or managers.
This thesis extracts and integrates existing theories from the literature and develops conceptual framework which are utilised to establish a relevant model. The study is conducted by developing the research hypothesis, identifying each variable, and collecting secondary data, and testing the hypothesis by using a quantitative analysis approach. Essentially, the present study is grounded in the Malaysian context, so that the results may assist decision makers to solve the capital expenditure problems from a corporate point of view.
The approach that is taken in the current study provides a contribution to the research of corporate financial management listed in Bursa Malaysia. Specifically, expected contribution of the study is to provide understanding of investors in terms the dominance of either Managerial Hypothesis or Pecking Order Hypothesis in the Malaysian context. Besides that, the findings of this study are expected to strengthen the existing theories of both the Pecking Order and Managerial Hypotheses.
I.6 Scope of Study
There are several limitations, or boundaries of the current study. Although many factors affect capital expenditure, this study only considers three variables (internal cash flow, insider ownership, investment opportunity) and one control variable (sales). Those variables were identified on the basis of the existing theory and previous research.
The research also has limitations in terms of geographical area and homogeneity of the sample. The research used publicly-owned manufacturing companies listed on Bursa Malaysia between the years 2002 and 2006. The study focuses primarily on manufacturing companies since they are more likely to invest heavily in property, plant, and equipment compare to those in service industries (Griner and Gordon, 1995; Sartono, 2001; Kim, 2001; Shin and Kim, 2002; Simos, 2006). Also, the cash flow and capital expenditure of manufacturing companies differ from agriculture, financial, utility industries.
The service industry has simultaneous production and consumption of the services. For example in a restaurant, the production and consumption of the service takes place at the same time. It is different from manufacturing company, where in most of the manufacturing operations, there exist inventories between each stage of production, and a finished goods inventory which can be increased or decreased as demand fluctuates. Take, for example, a production process that involves three stages; it begins from raw material in the production process and when the company gets to the end of stage one it has semi-finished goods that go into inventory. The company would then do more production of these semi-finished goods (or sub-assemblies). At the end of this stage, they would become finished goods and would go into the finished goods inventory. They would then go to a retail inventory, onto a shelf in a retail outlet, and finally to the consumer. The semi processed and finished goods might be in inventories for a considerable amount of time. There would be a considerable lag between the time the product was produced and the time it was consumed. So, the process of production in the service industries is different from that of the manufacturing company. There is also a difference in the cash flow management as well as in the amount of capital expenditure where manufacturing companies have larger amounts of capital expenditure than service industries.
There are several advantages in undertaking a study of Malaysia to address some of capital expenditure decision issues specific to developing and emerging countries. Firstly, Malaysia has enjoyed a remarkable economic growth and has been characterised as one the economic miracles in East Asia. Secondly, prior to the economy crisis in 1997, the government of Malaysia introduced new regulations including the company and capital market law as the legal framework in regulating corporate activities. This reform was aim at accommodating the rapid economic growth in this country. Finally, Malaysia is also the representative of many developing countries in terms of its reliance on external sources.
1.7. Institutional Background of the Research.
The manufacturing companies are an important instrument of economic growth to the Malaysian economy. Malaysia has progressively increased its development spending in recent years. The year 2002 recorded a 4.4 percent growth of real Gross Domestic Product (GDP). The growth of GDP had increased to 5.4 percent in the year 2003. In the year 2004, growth of GDP increased to 7.1 percent. The growth in the manufacturing sector is expected since it has greatly raised exports and expansion in domestic demand (MIDA, 2004).
In addition, the contribution of manufacturing industry to the GDP in the year 2002 was about 30.1 per cent. It has increased to 30.8 percent in the year 2003. In the year 2004 and 2005, 31.6 percent of GDP came from the manufacturing industry, hence it plays an important role in Malaysia's exports. In 2001, the contribution of manufactured exports achieved 86.1 percent of total exports. Then it had increased to 86.5 percent in the year of 2002. Unfortunately, the contribution was decreased to 65.6 percent in the year 2003. From the total of manufactured exports, it was the electronics, electrical machinery and appliances which provided the largest contribution, about 59.9 percent in the year 2001, and it increased to 60.9 percent in the year 2002 (MOF, various issues).
The industrial manufacturing in Malaysia has also given a significant contribution to the amount of employment of the economy. In the year 2002, the manufacturing industry contributed to 21.7 percent of total employment (2.6798 millions) in Malaysia, and the number had increased to 28.1 percent (2.8698 millions) in the year 2004. In the year 2005, 28.8 percent of total employment (3.1333 millions) was contributed by manufacturing industry (MOF, various issues).
The manufacturing sector enhancement also indicated an increase in the sector industrial output (as determined by the industrial production index), sales value and productivity. It was expanded by 12.6 percent and 19.6 percent for production index and sales revenue respectively in 2004. Thus, it is also recorded that productivity in the sector was a double-digit growth of 17.9 percent from January to October 2004 period (MIDA, 2004). In addition, in 2004 the sales value of manufacturing sector increased from RM 340.9 billion by 19.6 percent. The largest sales of RM109.7 was achieved by the semiconductor and other electronics components sub-sector in 2004 compared to RM100.4 billion in 2003 (MIDA, 2004). Also, companies raise their capital expenditure in order to increase their gross domestic product (Simos, 2006) which indicates that the higher the investment in the country the higher the Gross Domestic Product (GDP).
Like other emerging economies, Malaysia requires a high rate of capital expenditure to generate and sustain high economic growth to supplement growth in the labour force and technological progress. A high rate of capital expenditure needs high investment to replace used or out of date capital, and this represents a net increase in fixed investment which creates productivity for economic growth. In the Malaysian economy, capital expenditure has a direct and strong correlation with growth in labour productivity (Economic Review, 2007).
The trend of capital expenditure in Malaysia shows an increase every year because of the higher public and private investment spending. The rate of capital expenditure has strengthened during the period of the study, from 0.3 percent in 2002 to 2.7 percent in 2003, and 3.1 percent and 4.7 percent in 2004 and 2005 respectively. Moreover, there is a strong improvement of capital expenditure companies of 10.4 percent in 2006 (MOF, various issues).
Another evidence of the improvement of the capital expenditure in Malaysia can also be observed from the Business Expectations Survey of Limited Companies by the Department of Statistics, Malaysia. This survey revealed that the capital expenditure by large private and public companies in Malaysia rose steadily from RM 17 billion per year in 2003, to an increase of RM 18 billion in 2004 and 27.7 billion in 2005. A preliminary estimate shows that the investment by these companies remained high at RM 23 billion in 2006 (DOS, various issues). The increase in the capital expenditure was due to several sectors such as petroleum, manufacturing, transportation and telecommunication; on average the highest increase was in the manufacturing sector. This shows that the capital expenditure of manufacturing companies in Malaysia is higher than that of other sectors. This also reflects the fact that Malaysia remains internally competitive and an attractive investment destination to long term investors.
A significant increase of investment in the manufacturing sector can also be seen from the total investment approved by the Malaysian Industrial Development Authority (MIDA) from RM31.06 billion in 2005 to RM 45.99 billion in 2006 (an increase of 48 percent). The domestic investment increase of 96 percent and 13 percent from foreign direct investment also reflects the high investor confidence in the Malaysian economy. The improvement of total investment in 2006 was also due to the 14.2 percent increase in the number of projects compared to 2006 and this improvement was attributed to manufacturing companies from the petroleum, chemical, fabricated metal, wood, textile, and food products sectors.
From the capital utilisation point of view, manufacturing companies in Malaysia have a high capacity utilisation that will force higher capital investment. From 2005 to 2006, in on average, the capacity utilisation rate of the manufacturing sector was is high at 75 percent. A breakdown of the capacity utilisation rate shows that, on average, the export-oriented industries maintained an average capacity utilisation a rate of 78 percent and while the domestic-oriented industries an average of recorded 70 percent (Economic Reviews Public Bank, 2007).
In this manner Thus, it can be stated that manufacturing companies is one of the important factor that plays an important role in the economics growth of Malaysia because of the high capital expenditure and also high capacity utilisation employed. In relation to this Based on these observations, the manufacturing companies sector have has been chosen selected for sampling as a sample in this study.
1.8. Structure of Thesis
Chapter One provides the background of the research and explains states the problem definitions, the purpose of study, expected contribution of the study, and institutional background of the study. Chapter Two consists of reviews the of literature which and describes the development of the conceptual arguments to support the formulation of the hypothesis. The literature is developed on the basis of selected based on previous studies and the existing theories related to factors influencing capital expenditure. Chapter Three is concerned with explains the research methodology using quantitative research technique. The central theme of this chapter points out the quantitative research technique as an appropriate method for research in theory testing. Chapter Four explains is concern with the analysis of data and discuss the results obtained based on the regression model. Furthermore, this chapter is intended to explicate the process of testing the regression model, provide the results of the hypotheses testing. Finally, Chapter Five provides the discussion of the results, delve on the contributions, implications, and conclusions of the study.
