ISSN (Online): 2321-3418
server-injected
Economics and Management
Open Access

Determinants of Leverage in Manufacturing Companies: An Empirical Study in Indonesia

,
DOI: 10.18535/ijsrm/v10i10.em09· Pages: 4103-4111· Vol. 10, No. 10, (2022)· Published: October 10, 2022
PDF
Views: 455 PDF downloads: 270

Abstract

This study aims to examine the determinants of leverage in manufacturing companies listed on the Indonesia StockExchange.The investigation was carried out using panel data on manufacturing companies listed on the IndonesiaStock Exchange for the 2019-2021 period.The leverage variable in this study uses the debt-to-equity ratio (DER) asthe dependent variable.The independent variable is profitability as measured by return on assets (ROA), liquidity ismeasured by the current ratio (CR) and operating assets is measured by operating assets turnover (OATO), whilecompany size as a control variable is measured by the natural log of total assets.The data collection method usedpurposive sampling method to select data that met certain criteria according to research needs.Panel data analysisusingeviews software with multiple regression analysis model.The results of the analysis show that liquidity andoperating assets have a negative effect on leverage, while return on assets and firm size have no effect, so firm sizedoes not act as a controlling variable.

Keywords

firm sizeleverageliquidityopeating assetsprofitability

References

  1. Ali, L. (2011). The determinants of leverage of the listed-yextile company in India. European Journal of Business and Management, 3(12), 54-59. https://core.ac.uk/download/pdf/234624136.pdfGoogle Scholar ↗
  2. Alkhatib, K. (2012). The determinants of leverage of listed companies. International Journal of Business and Social Science, 3(24), 78-83. https://www.academia.edu/4494387/The_Determinants_of_Leverage_of_Listed_CompaniesGoogle Scholar ↗
  3. Ang, J.S., Chua, J.H., & McConnell, J.J. (1982). The administrative costs of corporate bankruptcy: A note. Journal of Finance, 37(1), 219-226. https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1540-6261.1982.tb01104.xDOI ↗Google Scholar ↗
  4. Chakma, S. (2018). Determinants of firm’s leverage and theoritical examination: A study on the food and allied companies in Bangladesh. Asian Finance & Banking Review, 2 (2), 42-62. https://www.cribfb.com/journal/index.php/asfbr/article/view/468/665Google Scholar ↗
  5. Chakrabarti, A. (2019). The Capital structure puzzle – evidence from Indian energy sector. International Journal of Energy Sector Management, 13(1), pp.2-23. https://www.deepdyve.com/lp/emerald-publishing/the-capital-structure-puzzle-evidence-from-indian-energy-sector-RJDk10WXqdGoogle Scholar ↗
  6. Chen, Y., Sensini, L., & Vazquez, M. (2021). Determinants of leverage in emerging markets: Empirical evidence. International Journal of Economics and Financial Issues, 11(2), 40-46. https://www.econjournals.com/index.php/ijefi/article/view/10997/pdfGoogle Scholar ↗
  7. Degryse, H., Goeij, P., & Kappert, P. (2012). The impact of firm and industry characteristics on small firms’ capital structure. Small Business Economics, 38, 431-447. https://link.springer.com/content/pdf/10.1007/s11187-010-9281-8.pdfDOI ↗Google Scholar ↗
  8. Delcoure, N. (2007). The determinants of capital structure in transitional economies. International Review of Economics and Finance, 16(3), 400-415. https://www.sciencedirect.com/science/article/abs/pii/S1059056006000086Google Scholar ↗
  9. Donalson, G. (1961). Corporate debt capacity: A study of corporate policy and theGoogle Scholar ↗
  10. determinant of corporate debt capacity. Boston, Division of Research, HarvardGoogle Scholar ↗
  11. Graduate School of Business Administration.Google Scholar ↗
  12. Fama, E., & French, K. (2002). Testing trade-off and pecking order predictions about dividends and debt. The Review of Financial Studies, 15(1), 1-33. https://www.jstor.org/stable/2696797Google Scholar ↗
  13. Flannery, M.J., & Rangan, K.P. (2006). Partial adjustment toward target capital structures. Journal of Financial Economics, 79(3), 469-506. https://www.sciencedirect.com/science/article/abs/pii/S0304405X05001571Google Scholar ↗
  14. Gitmann, Lawrence. 2003. Principles of Managerial Finance 10th edition. Prentice Hall.Google Scholar ↗
  15. Haron, R., & Ibrahim, K. (2012). Target capital structure and speed of adjustment: Panel data evidence on Malaysia Shariah compliant securities. International Journal of Economics Management and Accounting, 2(2), 87-107. https://www.researchgate.net/publication/279182292_Target_capital_structure_and_speed_of_adjustment_Panel_data_evidence_on_Malaysia_Syariah_compliance_securitiesGoogle Scholar ↗
  16. Huang, R., & Ritter, J.R. (2009). Testing theories of capital structure and estimating the speed of adjustment. Journal of Financial and Quantitative Analysis, 44(2), 237-271. https://www.jstor.org/stable/40505924Google Scholar ↗
  17. Hutchinson, R., & Hunter, R. (1995). Determinants of capital structure in the retailing sector in the UK. The International Review of Retail, Distribution and Consumer Research, 5(1), 63-78. https://doi.org/10.1080/09593969500000004DOI ↗Google Scholar ↗
  18. Kirshin, I., & Volkov, G. (2018). The determinants of corporate capital struscture: Evidenve from Russian panel data. Espacios, 39(44), 16. http://www.revistaespacios.com/a18v39n44/a18v39n44p16.pdfGoogle Scholar ↗
  19. Michaelas, N., Chittenden, F., & Poutzioris, P. (1999). Financial policy and capital structure choice in U.K. SMEs: Empirical evidence from company panel data. Small Business Economics, 12(2), 113-130. https://link.springer.com/article/10.1023/A:1008010724051DOI ↗Google Scholar ↗
  20. Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance, and the theory of investment: Reply. The American Economic Review, 49(4), 655-669. https://www.jstor.org/stable/1812919Google Scholar ↗
  21. Modigliani, F., & Miller, M. H. (1963). Corporate income taxes and the cost of capital: A correction. The American Economic Review, 53(3), 433-443. https://www.jstor.org/stable/1809167Google Scholar ↗
  22. Myers., S. C. (1984). The capital structure puzzle. Journal of Finance, 39, 575-Google Scholar ↗
  23. https://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1984.tb03646.xDOI ↗Google Scholar ↗
  24. Myers, S, C. (2001). Capital Structure. Journal of Economics Perspectives, 15(2) 81-102. https://www.aeaweb.org/articles?id=10.1257/jep.15.2.81DOI ↗Google Scholar ↗
  25. Myers, S, C., & Majluf, N. S. (1984). Corporate financing and investment decision when firms have information investors don’t have. Journal of Financial Economics,Google Scholar ↗
  26. , 187-221.Google Scholar ↗
  27. O’Brien, T. & Vanderheiden, P. (1987). Empirical measurement of operating leverage for growing firms. Financial Management, 16(2), 45-53. https://www.semanticscholar.org/paper/Empirical-Measurement-of-Operating-Leverage-for-O'Brien-Vanderheiden/62610a8d8bca20f8cb176cd43b517e04ff886e38Google Scholar ↗
  28. Onofrei, M., Tudose, M. B., Durdureanu, C., & Anton, S. G. (2015). Determinant factors of firm leverage: An empirical analysis et Iasi Country Level. Procedia Economics and Finance, 20, 460-466. https://doi.org/10.1016/S2212-5671(15)00097-0DOI ↗Google Scholar ↗
  29. Ozkan, A. (2001). Determinants of capital structure and adjustment to long run target:Google Scholar ↗
  30. Evidence from UK company panel data. Journal of Business Finance & Accounting, 28(1-2), 175-198. https://onlinelibrary.wiley.com/doi/epdf/10.1111/1468-5957.00370DOI ↗Google Scholar ↗
  31. Rajan, R., & Zingales, L. (1995). What do we know about capital structure? Some evidence from international data. Journal of Finance, 50, 1421-1460. https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.1995.tb05184.xDOI ↗Google Scholar ↗
  32. Rani, S., Narain., & Dhawan, S. (2016). Determinants of leverage decision on Indian firms: An empirical study. Business Analyst, 37(1) 19-30. https://www.srcc.edu/system/files/Pg%2019-30%20Asha%20Rani%2C%20Narain%20and%20Swati%20Dhawan%3B%20Determinants%20of%20Leverage%20Decision%20of%20Indian%20Firms%3B%20An%20Empirical%20Study.pdfGoogle Scholar ↗
  33. Vos, E., Andy, J.Y., Carter, S., & Tagg, S. (2007). The happy story of small business financing. Journal of Banking and Finance, 31(9), 2648-2672. https://www.sciencedirect.com/science/article/abs/pii/S0378426607000556Google Scholar ↗
  34. Zafar, Q., Wongsurawat, W., & Camino, D. (2018). The determinants of leverage decisions: Evidence from Asian emerging markets. Cogent Economics & Finance, 7, 1-28. https://doi.org/10.1080/23322039.2019.1598836DOI ↗Google Scholar ↗
Author details
Titiek Suwarti
Department of Accounting, Faculty of Economics and Business, Universitas Stikubank, Indonesia
✉ Corresponding Author
👤 View Profile →
Bambang Sudiyatno
Department of Management, Faculty of Economics and Business, Universitas Stikubank, IndonesiaDepartment of Management, Faculty of Economics and Business, Universitas Stikubank, Indonesia
👤 View Profile →