DETERMINANTS OF CAPITAL STRUCTURE: EVIDENCE FROM INDONESIA’S LISTED FIRMS

• Main Author: Naomi Margareth Pasaribu (19015142), Feby
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/27266
• Institution: Institut Teknologi Bandung

Defining ideal composition of capital structure is critical to companies in order to maximize firm’s value. This study aims to analyze the determinants of capital structure of Indonesia’s publicly listed firms registered in LQ-45 index. During the period of 2013-2017, the influence of determinants towards capital structure is being investigated using multiple regression model. The sample used in this study is selected through purposive sampling and thus obtained 32 companies. According to literature, this study analyzed nine dependent variables which are profitability, firm size, effective tax rate, asset tangibility, risk, growth opportunities, liquidity, non-debt tax shield, and short-term debt to total asset in relation with independent variable of capital structure measured by Debt to Equity Ratio (DER). This study suggests that profitability, asset tangibility, liquidity, and short term debt to total asset have significant influence to capital structure. Profitability and liquidity indicate negative significant influence towards capital structure which support pecking order theory. Asset tangibility has negative significant influence towards capital structure in accordance with literature. On the other hand, positive significant relationship between short term debt to total asset and leverage is aligned with tradeoff theory. While, firm size, effective tax rate, risk, growth opportunities, and non-debt tax shield do not have statistically significant influence towards capital structure.