The Static Trade-Off against the Pecking Order Hypotheses of Firms’ Capital Structure in Indonesia's Financial Market

Andriansyah Andriansyah

MPRA Paper from University Library of Munich, Germany

Abstract: This paper presents a literature review on some proxy variables and methodologies that can be used to test two competing hypotheses on capital structure, namely the static trade-off and the pecking order hypotheses. The choice of proxy variables and methodology of research are very important in testing the hypotheses: the empirical results heavily depend on the choice. Some discussions will be presented on the choice of several important variables and their corresponding proxies. Meanwhile, some methodologies and statistical models such as sampling survey, multiple regressions, two-step regressions, co-integration, logit, probit and latent variable approach are also discussed. A mean reversion model may be used to test the static trade-off hypothesis, while co-integration analysis may be utilised to test the pecking order hypothesis.

Keywords: Indonesia's financial markets; capital structure; static trade-off hypothesis; pecking order hypothesis; and dynamic models. (search for similar items in EconPapers)
JEL-codes: G1 G10 G3 G31 (search for similar items in EconPapers)
Date: 2009
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Published in Journal of Banking and Finance 1.11(2009): pp. 75-88

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