SIGNIFICANCE OF CREDIT RATINGS FOR CAPITAL STRUCTURE (Case Study: Indonesian Companies)
Capital structure needs to be managed with optimally because it will produce a large effect on firm value. One of funding sources is debt. Bonds as a source of funding comes from the capital markets. Companies will try to get a credit rating to assess its capacity to <br /> <br /> <...
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| Format: | Theses |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/16068 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | Capital structure needs to be managed with optimally because it will produce a large effect on firm value. One of funding sources is debt. Bonds as a source of funding comes from the capital markets. Companies will try to get a credit rating to assess its capacity to <br />
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fulfill obligations. Differences in credit rating will result in cost and benefit that could affect the companies in determining their capital structure. Recently, there are regulations governing financial institutions that raise and manage funds from customers to be cautious in investing in bonds, such as capital market supervisory commission (BAPEPAM-LK) PER 02/BL/2009 about minimum solvability for insurance and reinsurance companies, Bank of Indonesia 7/2/PBI/2005 about assets valuation for banking, and Minister of Finance 199/PMK.010/2008 about pension funds. This study has examined the significance of credit ratings for capital structure in Indonesia during 2003-2008. Samples were non-financial firms. Non-financial companies were not used due to different account structure. The theories being used in this study called credit rating capital structure (CR-CS) theory and the pecking order theory. CR-CS theory states that the credit rating associated with the cost and benefits of the company. While pecking order theory explains corporate financing decision based on priorities. According to these theories, Indonesian companies do not consider credit rating as a primary factor in determining capital structure. Companies do not pay attention to the cost <br />
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and benefits resulting from the change in credit rating. <br />
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Indonesian companies should pay attention to credit rating and capital structure. With a good quality credit rating, the company has a great opportunity to get a debt with a lower cost. A good credit rating and the optimal capital structure will then maximize firm value. |
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