CAPITAL STRUCTURE DETERMINANTS OF PUBLIC INFRASTRUCTURE COMPANIES IN INDONESIA

• Main Author: Luthfinanda Benyamin, Prima
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/71678
• Institution: Institut Teknologi Bandung

The infrastructure utilization concept is a service that is created by certain or several infrastructures over a certain period. The service output should increase a region or nation’s productivity over time, stimulating economic growth. It is found that the public investment (including infrastructure) economical value will increase up to 1.5 times greater in two to five years compared to another public spending. Under the leadership of President Joko Widodo, infrastructure development is one of the government’s priorities to support Indonesia’s economic development. To unlock a country’s potential, good infrastructure is needed; good infrastructure accelerates economic growth, lowers transportation costs, and reduces consumer goods prices, leading to a better living standard. The government invested in infrastructure USD 429.7 billion in 2020-2024, which is up 20% compared to 2015-2019. The financial characteristic of the infrastructure sector is the steady cash flow due to the revenue model, which makes it easy to predict so it can utilize to gain high-level leverage. High-level leverage also possesses a huge risk, it requires the company or project’s ability to generate revenue to pay the financing interest. Due to the risks that are possessed by the infrastructure industry, the capital structure needs to be managed carefully. This research objective is to examine the determinants that influence capital structure. The research and development regarding capital structure were started by Modigliani and Miller (hereafter, MM) in 1958, which uses perfect capital market conditions as the assumptions. They discover in their innovative research that a firm value does not affect by its capital structure. It is going along with a precise assumption that the market is in perfect condition. Therefore, managers' capital structure decisions cannot affect.the firm's value or the cost of capital. MM, on the other hand, revises the tax assumption by incorporating the.tax.advantage.on.earnings.into.their.model. The revisions were made because the tax shield is provided by the interest deductibility through debt. Since then, a lot of capital structure theories have emerged such as agency cost theory, pecking order theory, trade-off theory, and market timing theory. Having discussed the theory behind capital structure decisions, managers will decide the capital structure decisions based on several factors. Using profitability, growth, firm size, non-debt tax shields, and tangibility managers can decide which one needs to have more effect on the company leverage. The research population consists of all companies listed on the Indonesia Stock Exchange (IDX) in the infrastructure, utilities, and transportation sectors. From the total population, samples were taken based on predetermined criteria. One of the predefined criteria is market capitalization, this research will only include listed infrastructure companies that have a minimum USD 300 million market capitalization. A hypothesis is created to provide a link to the previous research. This study analyzed secondary data using unbalanced panel data regression with GLS estimators. Static capital structures based on trade-off theory are used in the models. Also, hypothesis testing is done by using tests such as the F-test, T-test, and coefficient of determination (R2). Determinants of capital structure based on the static model are profitability, tangibility, growth, and liquidity. Liquidity, tangibility, and profitability positively affect the company leverage, while growth is giving the opposite impact on the company leverage. Amongst the determinants that have a positive impact, profitability has the highest impact. Which means that leverage is highly affected by it. Recommendations and suggestions in this research are to study further other determinants that this research cannot explain. It is also hoped that therresearchers willduct the same research but utilize a different method which is then compared to decide which method is the best.