The effect of risk leverage on investors’ preferences in manufacturing companies listed on the Indonesia Stock Exchange
-
DOIhttp://dx.doi.org/10.21511/imfi.15(3).2018.16
-
Article InfoVolume 15 2018, Issue #3, pp. 190-198
- Cited by
- 989 Views
-
124 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
Financial resources have become one of the funding policies considered by companies. The financial resources can come from internal and external sources. Leverage is used as one of the policies to get external source of funds. By using leverage, companies have additional funds that can be used for their operations and investments. When a company decided to use leverage as a financing policy, it is expected to get enough funds to finance its business. Raising the funds will lead to better company’s financial performance. However, on the other hand, by raising funds, the company also needs to consider the risks. Thus, leverage is related to risk. Then, risk is one of the considerations for investors to think about.
This research aims to examine the effect of risk leverage and hopefully can give illustration for investors in analyzing the risks of investors’ preferences. Besides, other variables used are size and profitability. These two variables are also the ground for considering risks. With pooled data analysis, this research was conducted on manufacturing companies listed on the Indonesia Stock Exchange during the five-year period from 2012 until 2016. The result shows that leverage, profitability and size have significant effects on risk.
- Keywords
-
JEL Classification (Paper profile tab)G10, G11, G19
-
References26
-
Tables3
-
Figures2
-
- Figure 1. Normality test
- Figure 2. The scatter plot of risk in quadrant
-
- Table 1. Regression output
- Table 2. Autocorrelation test
- Table 3. Heteroscedasticity test
-
- Ahmad, Y. K., & Qais, A. D. (2017). Sales nationality and debt financing impact on firm’s performance and risk: Evidence from Jordanian companies. EuroMed Journal of Business, 12(1), 103-126.
- Akbari, P., & Mohammadi, E. (2013). A study of the effects of leverages ratio on systematic risk based on the capital asset pricing model among accepted companies in Tehran stock market.
- Bhatti, A. M., Majeed, K., Rehman, I., & Khan, W. (2010). Affect of leverage on risk and stock returns: evidence from Pakistani companies. International Research Journal of Finance and Economics, 58, 32-49.
- Bowman, R. G. (1979). The theoretical relationship between systematic risk and financial (accounting) variables. The Journal of Finance, 34(3), 617-630.
- Brigham, E. F., & Ehrhardt, M. C. (2010). Financial Management: Theory and Practice. Thomson ONE Publishers.
- Chen, L.-J., & Chen, S.-Y. (2011). The influence of profitability on firm value with capital structure as the mediator and firm size and industry as moderators. Investment Management and Financial Innovations, 8(3), 121-129.
- Dunn, M. F. (2001). An intuitive interpretation of beta. Proceeding at the Allied Academies International Conference Academy for Economics and Economic Education.
- Houmes, R. E., MacArthur, J. B., & Harriet, S. (2012). The operating leverage impact on systematic risk within a context of choice: An analysis of the US trucking industry. Managerial Finance, 38(12), 1184-1202.
- Fama, E. F., & French, K. R. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3-56.
- Hol, S., & Wijst, N. V. (2008). The financial structure of nonlisted firms. Applied Financial Economics, 18(7), 559-568.
- Hurdle, G. J. (1974). Leverage, risk, market structure and profitability. The Review of Economics and Statistics, 56, 478-485.
- Khasawneh, A. Y., & Dasouqi, Q. A. (2017). Sales nationality and debt financing impact on firm’s performance and risk: Evidence from Jordanian companies. EuroMed Journal of Business, 12(1), 103-126.
- Khoshkar Hassan Kyadeh, F. (2008). Investigate the relationship between financial and operating leverages with systematic risk (beta) in companies Listed in Tehran Stock Exchange. Master thesis of banking institutions in Iran.
- Laksana, R. D., Hersugondo, H., Wahyudi, S., Muharam, H. (2017). The new decomposition asset growth effect. An empirical evidence of Indonesia. Journal of Applied Economic Sciences 12(4), 977-984.
- Lev, B. (1974). On the association between operating leverage and risk. Journal of financial and quantitative analysis, 9(4), 627-641.
- Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147-175.
- Myers, S. C. (1984). The capital structure puzzle. The Journal of Finance, 39(3).
- Myers, S. C., & Maljuf, N. S. (1984). Corporate Financing And Investment Decisions When Firms Have Information That Investors Do Not Have. Journal of Financial Economics, 13, 187-221.
- Nadarajah, S., Ali, S., Liu, B., & Huang, A. (2016). Stock liquidity, corporate governance and leverage: New panel evidence. Pacific-Basin Finance Journal.
- Ojah, K., & Manrique, J. (2005). Determinants of corporate debt structure in a privately dominated debt market: a study of the Spanish capital market. Applied Financial Economics, 15(7), 455-468.
- Panno, A. (2003). An empirical investigation on the determinants of capital structure: the UK and Italian experience. Applied financial economics, 13(2), 97-112.
- Puspitaningtyas, Z. (2017). Estimating systematic risk for the best investment decisions on manufacturing company in Indonesia. Investment Management and Financial Innovations, 14(1), 46-54.
- Rashid, A. (2014). Firm external financing decisions: explaining the role of risks. Managerial Finance, 40(1), 97-116.
- Saritas, H. (2000). The impact of financial leverage on return and risk. Degrisi Journal, 15(1), 2334.
- Stephan, L., & Alexander, S. (2015). The diverging role of the systematic risk factors: evidence from real estate stock markets. Journal of Property Investment & Finance, 33(1), 81-106.
- Tobin, J. (1958). Liquidity preference as behavior towards risk. The Review Of Economic Studies, 25(2), 65-86.