Financial Leverage and Financial Performance in the Tertiary Sector: Partial Least Square- Multi-Group Analysis (PLS-MGA)

Abstract

We examine the comprehensive simultaneous relationship between countries, tertiary sector,
financial leverage and firm financial performance. Most researchers routinely control for the
industry or the country as a dummy variable in order to test how the firm financial leverage
affect firm financial performance. However, the significant difference in the tertiary sector and,
if there is, how the tertiary sector is different across countries, namely Malaysia and Indonesia
have not extensively examined. Therefore, from the methodological standpoint, the PLS-SEM
procedures and, as an extension, the PLS-MGA approach would make a valuable difference to
current knowledge, especially from the perspectives of the capital structure theory. We test the
equality of coefficient effects using Partial Least Square of Multi-group analysis (PLS-MGA)
between country comparisons for tertiary sector of the economy. The data sample consists of 13
subsectors with the total final sample of 2720 for Malaysian and Indonesian tertiary sectors. The
result reveals that there are few firm-country attributes to financial leverage and financial
performance are differ across countries. However, we find that the Malaysian and Indonesian
tertiary sector shows consistent equal effects in their financial leverage and firm financial
performance