Relationship Between Capital Structure and Abnormal Returns: An Empirical Evidence of the Listed Companies in the Stock Exchange of Thailand

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Kunkarawee Luksanapunpong
Surang Hensawang


This applied research aims to examine the relationship between capital structure and abnormal return by using the listed companies in the Stock Exchange of Thailand as empirical evidences. This research gathered data from SETSMART database during the 5-years study period from 2013 to 2017. The capital structure and abnormal return were measured by using the total debt to equity ratio and the Capital Asset Pricing Model, respectively. The controlled variables included size, price to earning ratio, price to book value ratios, beta, return on asset, and the average saving rate of  the big 4 banks. Then, the relationship was analyzed by using fixed effects regression.

The research revealed that the listed companies in the Stock Exchange of Thailand during 2013-2017 had the average debt to equity ratio at 1.482 times, and the average abnormal return was -0.207 percent annually. There existed the significant negative relationship between capital structure and abnormal return with a correlation coefficient of -0.026. This implied that the effect of bankruptcy dominates tax benefit. Additionally, price to earning and price to book value ratios are significantly negatively correlated with abnormal return, signifying correlation coefficients of -0.005 and -0.012, respectively. Therefore, the securities having low total debt to equity ratio, price to earning ratio, price to book value ratio are recommended.

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