Determinants of Capital Structure: Empirical Evidence from the Indonesia Stock Exchange

Abstract

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 manager should prioritize these four variables in determining the company’s capital structure.

Keywords: capital structure, Indonesia, net debt to equity ratio, non-financial companies