Firm characteristics and capital structure adjustment

  • Received March 6, 2018;
    Accepted May 10, 2018;
    Published May 17, 2018
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.15(2).2018.12
  • Article Info
    Volume 15 2018, Issue #2, pp. 129-144
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The adjustment for the firm capital structure is unclear from perspectives of trade-off theory, pecking order theory, life cycle theory, market timing theory, and free cash flow theory, since many research findings contradict each other. Adjustments for the capital structure are complex, since the conditions for each firm are different. The objective of this study is to provide empirical evidence of how firms adjust capital structure in relationship with maturity in context of trade-off, pecking order, free cash flow, and market timing theory. In terms of hypotheses testing, this study conducts logistic regression analysis with 138 Indonesian public firms as the sample in the observed period from 2010 to 2015. To distinguish the results, this study controls the sample by size and age based on the median. The study reports that preferences for the source of funds based on the cost of capital, internal conflict, and firm maturity indicate adjustments for the firm capital structure. Based on Indonesian firms, the form of capital structure in developing countries can refer to a single model or a combination of the trade-off model and pecking order model, as well as market timing.

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    • Table 1. Summary of hypotheses development
    • Table 2. Sample
    • Table 3. Descriptive statistics
    • Table 4. Logistic regression results for firm capital structures
    • Table 5. Summary of findings for capital structure
    • Table 6. Theories implications