Investigating Capital Structure Speed of Adjustment (SOA) of Indonesian Companies for Corporate Value

G. Oka Warmana (), I. Ketut Rahyuda (), Ida Bagus Anom Purbawangsa () and Ni Luh Gede Sri Artini ()
Additional contact information
G. Oka Warmana: University of Udayana
I. Ketut Rahyuda: University of Mahasarawati Denpasar
Ida Bagus Anom Purbawangsa: University of Mahasarawati Denpasar
Ni Luh Gede Sri Artini: University of Mahasarawati Denpasar

Global Journal of Flexible Systems Management, 2020, vol. 21, issue 3, No 2, 215-231

Abstract: Abstract The objective of this study is to evaluate influence of growth potential, profitability, company size, ratio between capital structure and its target, short-term loan, asset maturity, growth of GDP and inflation rate towards capital structure SOA. The study involved secondary data in the form of financial reports from manufacturing companies listed in Indonesian Stock Exchange (ISE) published in ISE website, www.idx.co.id , and National Bureau of Statistics data about Indonesian economy published in www.bps.go.id , National Bureau of Statistics. From the result of partial adjustment model estimation, significant leverage lag shows that Indonesian manufacturing companies adjust their capital structure towards target leverage with SOA of 64.73% per year. This finding confirms in Darminto and Manurung (J Bus Manag 1(1):35–52, 2008) that capital structure SOA of Indonesian companies is relatively faster than that in the developed countries like USA (30%) (Flannery and Rangan in J Financ Econ 79(3):469–506. http://doi.org/10.1016/j.jfineco.2005.03.004 , 2006). Capital structure SOA of manufacturing companies in Indonesia is similar to Ramjee and Gwatidzo (Medit Account Res 20(1):52–67, 2012)’s study on capital structure SOA of manufacturing companies in South Africa (between 62.3 and 65.5% per year). Originality of this study is capital structure measurement used in the study. Until recently, two major theories, trade-off theory and pecking order theory, have been used to explain capital structure of companies. Previous studies evaluated both theories separately. This study is based on “dynamic trade-off theory” in which the trade-off theory and pecking order theory are evaluated simultaneously instead of partially.

Keywords: Capital structure; Manufacturing industry; Speed of adjustment (search for similar items in EconPapers)
JEL-codes: G30 G34 O16 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://link.springer.com/10.1007/s40171-020-00235-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:gjofsm:v:21:y:2020:i:3:d:10.1007_s40171-020-00235-9

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/40171

DOI: 10.1007/s40171-020-00235-9

Access Statistics for this article

Global Journal of Flexible Systems Management is currently edited by Sushil

More articles in Global Journal of Flexible Systems Management from Springer, Global Institute of Flexible Systems Management
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().