The determinants of firm financing structures across sectors: an evidence from Indonesian listed companies

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The study investigates the impacts of firms-, industry-, and country-level covariates on the financing structure amongst the Indonesian listed companies. Using artificial nested testing procedure, the preferred models were selected that could illustrate the association between debt ratio and its determinants. By making use of the full sample, it was found that these three levels of determinants explain approximately 73% of leverage variations.
Further, the importance of these determinants on leverages across sectors is also investigated in this study. The sectoral behavior plays a crucial role as the firm- and sector-level covariates indicate more important variables than country-level covariates, which implies that the firm-level covariates become the main factors in firm financing structure determination.
The artificial nested testing procedure (F-test) was used choose the preferred models, which is suitable for each sector. The selection of models depends on the sectoral characteristics, which indirectly control the orientation and magnitude of relationships. Those three levels of determinants have different impacts on capital structure across sectors, which provides evidence that the sectoral behaviors indirectly tend to influence the association between determinants and firm financing pattern in the Indonesian context.

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    • Table 1. Variable definition and theory prediction
    • Table 2. Number of sample firms and number of observations
    • Table 3. Regression results of the relationship models between debt ratio and its determinants – full sample data
    • Table 4. Model selection of relationship between debt ratio and three level determinants – full sample data
    • Table 5. Preferred estimation method for panel data analysis
    • Table 6. Selection of preferred relationship model between debt ratio and its determinants – across sectors
    • Table 7. Regression results of preferred relationship model between debt ratio and its determinants – across sectors