Impact of Capital Structure and Macroeconomic Factors on Firm Efficiency of Private Retirement Schemes (PSR) Providers: Evidence from Malaysia

Goh, May Yin (2024) Impact of Capital Structure and Macroeconomic Factors on Firm Efficiency of Private Retirement Schemes (PSR) Providers: Evidence from Malaysia. Masters thesis, Tunku Abdul Rahman University of Management and Technology.

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Abstract

Due to the increasing of life expectancy and higher cost of living, pension fund plays a significant role in the retirement planning for individual. This paper evaluates the determinants of the efficiency of private retirement scheme (PRS) providers in Malaysia by investigating their own specific factors and macroeconomic factors. The study employs a total of nine private retirement schemes (PRS) providers in Malaysia as stated by Private Pension Administrator (PPA) Malaysia during the period between 2012 and 2022. Based on the theoretical framework, the Modigliani Miller capital structure theory or irrelevance theory, agency cost theory, trade-off theory, pecking order theory, free cash flow theory, signalling theory, endogenous growth theory, demand-pull theory, and interest rate theory are discussed respectively to support the possible relationships found in this study. In the first stage, Data Envelopment Analysis (DEA) approach is conducted in measuring the firm efficiency of PRS providers with the dependent variables of VRC, CRS and SE. This study applies 4 inputs and 3 outputs in measuring the efficiency scores of each DMU; property, plant and equipment, salaries and wages, cash and cash equivalents, and total asset as input variables; operating revenue, net income, and earnings per share (EPS) as output variables. In the second stage, this study employs the functions of static (pooled OLS, FE, and RE) and dynamic (system GMM) panel data regression models to measure the relationships between the determinants and firm efficiency of PRS providers. From the empirical findings, the results shows the firm-specific characteristics had a significant relationship with firm efficiency of PRS providers. Short-term debts and total debts to total equity negatively had a negative relationship while the long-term debts and total debts had a positive relationship with the efficiency scores evaluation. In terms of macroeconomic factors, this study shows that it had a positive relationship with GDP, a negative relationship with interest rate, and there had no significant impact between exchange rate, inflation rate and unemployment rate on the firm efficiency. This study provides the implications for policymakers, pension fund institutions, pension and non-pension contributors, and significant study in the academic field