Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indonesian Stock Exchange (original) (raw)
Related papers
Conference Series
Plantation is a promising sector, but just like other firms, this sector will also face the financing problem. Capital structure determines the cost of capital and the risk assumed by the firm. Trade-off and Pecking order theory are the most common theory used to determine the capital structure. The objective of this research is to examine plantation companies tend to use trade-off theory or pecking order theory in determining the capital structure decision. This research used multiple linear regression analysis methods with capital structure as the dependent variable, and the asset structure, firm size, company growth, institutional ownership, effective tax rate, and non-debt tax shield as the independent variables.This is a quantitative research that uses secondary data from financial statements of plantation companies listed in the Indonesia Stock Exchange for 2014 to 2019. The sample was determined by using the purposive sampling technique and 5 out of 21 companies fulfill the s...
Testing Pecking Order Theory and Trade Off Theory Models in Public Companies in Indonesia
2015
The purpose of this paper was to test the trade off and pecking order theory of capital structure. We started with identifiying variables that influenced capital structure based on both theory. The data in the study were gathered from statistics and annual report of IDX in 2009. There were 46 companies that distributed dividends in 2008 (this year was as the base year to discover the changes) and 2009. Subsequently there were two companies were excluded because the availability of data and the reports were submitted in US Dollars. From 44 companies, there were 28 companies were excluded because there was not any financing deficits and the remaining 16 manufacturing companies were used as samples in this study. Despite the fact these results support the POT model; they were weak to elaborate the POT model as there were only 45.1% of the companies taking financing decision through debt. This can be explained based on market timing theory in the decision making of capital structure.
The purpose of this paper is to examine determinant of capital structure of Iranian listed companies based on trade off theory and pecking order theory of capital structure. There are many factors that may affect capital structure choice. However, this study focuses on four important characteristics of Iranian firms and tries to clarify their impact on capital structure. The dependent variable is firm’s leverage ratio and independent variable consists of tangibility, profitability, growth and business risk. This study uses financial information of 133 Iranian listed companies on Tehran Stock Exchange for the period of 10 years from 2005 to 2014. The OLS regression model is used to determine relationship between dependent and independent variables. Finding show that profitability is the most important determinant of capital structure for Iranian companies followed by tangibility, growth and business risk. Profitability and business risk are inversely correlated with debt ratio, while liquidity and growth are directly associated to debt ratio. Results of hypothesis testing based on relationship between independents and dependents variables are fully in line with pecking order theory, while it partially supports trade of theory in short, capital structure of Iranian firms is completely explained by pecking order theory of capital structure.
Determinants of Capital Structure: Empirical Evidence from the Indonesia Stock Exchange
2018
Capital structure strategy relates to the composition of debt and equity, which will deliver the highest profitability to the companies. To analyze the variables affecting the capital structure, this study utilized yearly financial statements from 2001 to 2015 with the exclusion of 2008, for 136 non-financial public companies listed on the Indonesia Stock Exchange. This study adopted an econometric approach of t-test, correlation coefficient, difference test and descriptive statistics analysis. The variables adopted are net debt-to-equity ratio as the dependent variable, size, profitability, asset structure, liquidity, sales growth and capital expenditure as the independent variable. This study found that for overall market, size, profitability, asset structure and sales growth have a significant relationship with capital structure. On the other hand, this study found no significant relationship between liquidity and capital structure. The findings of this study suggested that the m...
The purpose of this study was to analyze the factors affecting capital structure in Indonesia. The variables used were DER as the dependent variable and as independent variables are profitability, growth opportunity, fixed asset tangibility, size, dividend payout ratio and shortterm debt to total assets. The sample used in this study is a company registered in LQ-45. And selected by using purposive sampling. Thus obtained 38 companies as a sample. The analytical method used is linear regression. The results obtained from this study is the variable profitability, tangibility fixed assets and short term debt to total assets that have a significant influence 5%. While the growth opportunity and size variables have a significant influence 10%. While the variable dividend payout ratio does not have a significant influence.
Revisiting External Pecking Order Hypothesis: Evidence from Sri Lankan Companies Capital Structure
Journal of Financial Risk Management
This research is based on pecking order theory, which is one of the major capital structure determinant theory, driven by the information asymmetry. The purpose of this research is to investigate whether the pecking order theory provides an accurate description of companies financing choices in the context. Further, to examine whether informational asymmetry plays an important role in determining the financing hierarchy, and whether the financial deficit variable plays a key role determining the capital structure, the analysis has been conducted by utilizing a unique dataset from the Sri Lankan listed companies within multiple industrial sectors from 2011 to 2017. Empirical analysis has been done based on Panel data analysis model with regression tools suggested. The findings suggest that company's follow original pecking order hypothesis where companies' preference towards debt is higher than equity in determining their capital structure. Moreover, financing choices are contingent on informational asymmetry. Moreover, the financial deficit variable has a significant impact compared to four more conventional capital structure determinants.
Pecking Order and Trade-off Theory in Capital Structure Analysis of Family Firms in Indonesia
The purpose of this study has analyzed the determinants of policy decisions of the capital structure of family firms listed on the Indonesia Stock Exchange (IDX) in 2012-2016. The company's capital structure was measured by using debt to equity ratio (DER). Determinants of capital structure used include profitability (ROA), asset structure, growth (growth), firm size (size) and business risk (risk). This research was quantitative research with a kind of causal research. Using a sample of 38 family companies in Indonesia listed on Indonesia Stock Exchange (IDX). Hypotheses testing method of multiple linear regression. The result showed that ROA had a negative effect not significant to DER. The asset structure had a significant positive effect on DER; growth had no significant negative effect on DER, size had no significant positive effect on DER and risk had a significant negative effect on DER. The findings research that the average family firm in Indonesia still uses Pecking Order Theory in the application of capital structure. order and trade-off theory in capital structure analysis of family firms in Indonesia. Jurnal Keuangan dan Perbankan, 22(1): 73-82 http://doi.org/10.26905/jkdp.v22i1.1793 Abstrak Tujuan dari penelitian ini adalah untuk menganalisis faktor-faktor penentu keputusan kebijakan struktur modal perusahaan keluarga yang terdaftar di BEI (Bursa Efek Indo-nesia) tahun 2012-2016. Struktur modal perusahaan diukur dengan menggunakan debt to equity ratio (DER). Faktor penentu struktur modal yang digunakan diantaranya profitabilitas (ROA), struktur aktiva, pertumbuhaan (growth), ukuran perusahaan (size) dan risiko bisnis (risk). Penelitian ini merupakan penelitian kuantitatif dengan jenis penelitian kausal. Menggunakan sampel 38 perusahaan keluarga di Indonesia yang terdaftar di Bursa Efek Indonesia (BEI). Pengujian Hipotesis metode regresi linear berganda. Hasil penelitian menunjukkan ROA berpengaruh negatif tidak signifikan terhadap DER, Struktur aktiva berpengaruh positif signifikan terhadap DER, Growth berpengaruh negatif tidak signifikan terhadap DER, Size berpengaruh positif tidak signifikan terhadap DER, Risk berpengaruh negatif signifikan terhadap DER. Rata-rata perusahaan keluarga di Indonesia masih menggunakan Pecking Order Theory dalam penerapan struktur modal.
Testing the Trade Off and Pecking Order Models of Capital Structure
Abstract: In this paper, we test two-models of capital structure by using Shyam-Sunder and Myers (1999) approach for finding the capital structure behaviour of U.K. firms, whether firms follow pecking order or trade off model. Sample size consists of 60 firms and 51 firms; observation period ranges from 1992 - 2012 and 1995 - 2012. By using panel data regression in the two-sample size and periods, empirical results show that neither model is appropriate for giving any conclusive result for the capital structure behaviour of U.K. firms. Keywords: capital structure, pecking order, trade off model, empirical, behaviour of U.K. firms.
Analysis of Capital Structure in Various Industry Companies on the Indonesia Stock Exchange
https://www.ijrrjournal.com/IJRR\_Vol.8\_Issue.2\_Feb2021/IJRR-Abstract080.html, 2021
The finances of a company are determined by the capital structure. There are variables that effect the capital structure of a company, for example, such as asset structure, liquidity (quick ratio), and profitability (GPM). This study aims to determine the effect that occurs between asset structure with capital structure, liquidity with capital structure, and profitability with capital structure. The data collection technique used a purposive sample, and there were 9 samples of companies from 39 populations of various industry companies listed on the Indonesia Stock Exchange (BEI) in 2014-2018. The analysis model uses multiple linear regression. Based on the results of the F test, it shows that the value of Fcount>Ftable is 9.508>2.83, so that simultaneously the asset structure, liquidity, profitability have an effect on the capital structure of companies in various industry companies on the Indonesia Stock Exchange. Whereas in the t test, asset structure, liquidity, profitability do not partially effect the capital structure.
Analysis of Factors Affecting the Capital Structure in Indonesia Stock Exchange
2016
This study aimed to analyze the factors affecting the capital structure of the enterprise. Variables used profitability, size, tangibility, growth, earnings volatility, liquidity, and business risk. This study uses a quantitative approach to the analysis of multiple linear models. This study used a sample of manufacturing business entity registered in Indonesia Stock Exchange period 2009-2013. The samples used in this study were 328 observations. The results showed that the variables of profitability and earnings volatility significantly negative effect on the capital structure (debt). Variable size, tangibility, and positively affect growth significantly to capital structure (debt). However, the study also found that variable liquidity and business risk significantly negative effect on the capital structure (debt).