An overview of capital structures and profitability among selected private higher educational institution clusters in Malaysia

Malaysian higher educational landscape experienced drastic changes as a result of liberalisation measures undertaken by the government. PHEI are very much dependent on student fees for survival. Not surprising then in order to ensure continued business success, they are driven by financial motives. Capital structure is reflective of the corporate financing approach used by organisations.Decisions regarding capital structures are focused on the distribution between debt and equity in financing PHEI. It has always been the aim of PHEI to achieve optimal combination of capital. If this is achieved, then the cost of capital is reduced which in turn improves the PHEI net economic return and ultimately pushes the PHEI competitiveness upward. A study was conducted to examine the relationship between capital structure and profitability of different Private Higher Educational Institution (PHEI) clusters in Malaysia. A sample of 41 PHEI was selected in this study. Financial statements between 1999 through 2003 (depending on the availability of data) were obtained from Companies Commission Malaysia. The first section of this paper describes the relevant studies of PHEI and the concept of capital structure. Different clusters of PHEI are also explained. The second part highlights the impact of capital structure on the profitability of PHEI and clusters of PHEI. This part also examines the possible variables that may affect the management of capital structure of PHEI.