Determinants of Capital Structure and the Role of Capital Structure on Firm Value

Abstract

The purpose of this research is to examine the determinants of capital structure and role of capital structure on firm value of the Go Public listed Indonesian Stock Exchange. In this research, the determinants of capital structure are liquidity, volatilities of earnings, profitability, size of the firm, capital expenditures and firm growth. Data analysis was performed on manufacturing companies which were listed in Indonesia Stock Exchange from 2008 to 2012. Results of data analysis using econometric model and panel data analysis showed that liquidity, profitability, size of the firm and capital expenditures has significant effect to capital structure, while no significant effect was found between volatilities of earnings and firm growth against company’s capital structure. Result of this study also found that capital structure didn’t have significant effect to firm value.

Keywords: capital structure, firm value, liquidity, earnings volatilities, profitability, firm size, capital expenditures, firm growth.