Firm-Specific Factors as Determinants of Capital Structure: Evidence From Indonesia

Imad Moosa () and Larry Li ()
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Imad Moosa: School of Economics, Finance and Marketing, RMIT University Australia, 239 Bourke Street, Melbourne, VIC 3000, Australia
Larry Li: School of Economics, Finance and Marketing, RMIT University Australia, 239 Bourke Street, Melbourne, VIC 3000, Australia

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2012, vol. 15, issue 02, 1-17

Abstract: The cross-sectional technique of extreme bounds analysis (EBA) is used to identify the determinants of capital structure in a sample of Indonesian shareholding companies. Additional results are presented based on variable deletion and nonnested model selection tests. The results of traditional EBA show that the only robust variable is liquidity, but the results of restricted EBA add three more robust variables: profitability, tangibility, and income variability. However, variable deletion and nonnested model selection tests lend support only to size and liquidity. The conclusion is that most of the variables that appear important in studies of capital structure may not be important at all. From a policy perspective, the finding that some firm-specific factors are relevant to corporate capital structure confirms that financial reform has eliminated the distortions of corporate financial policies and financial markets caused by the previously dominant role of state banks.

Keywords: Extreme bounds analysis; capital structure; trade-off theory; pecking order theory (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (12)

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DOI: 10.1142/S021909151150007X

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