Leverage Determinants of Manufacturing Firms: Evidence From Indonesia

Eka, Handriani (2020) Leverage Determinants of Manufacturing Firms: Evidence From Indonesia. INTERNATIONAL JOURNAL OF SCIENTIFIC & TECHNOLOGY RESEARCH, 9 (4). pp. 2734-2744. ISSN 2277-8616

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This research aims to explore the most significant leverage determinants of manufacturing firms in Indonesia and to provide an explanation on this issue by using a multiple regression model. Modigliani and Miller and pecking order theory were used to formulate propositions that could examine the determinants of financial distress of manufacturing firms. LISREL software was used to analyse the multiple regression model as a statistical tool to investigate the most significant profitability determinants of 300 manufacturing firms listed in Indonesia Stock Exchange in the period of 2010-2018. The results found that profitability, agency cost, and non-debt tax shield (NDTS) variables had a negative influence on the debt ratio, while bankruptcy cost, firm size, firm growth, and risk variables had a positive influence on the debt ratio. These results led to a negative influence on the asset growth rate toward the debt ratio at an above-average asset growth rate which had a low debt ratio. This also explained that the results supported the pecking order theory where the higher the firm growth, the more the firm to prefer to fund the firm expansion with internal capital, and vice versa. In addition, the results found also indicate that Indonesian manufacturing firms with a high asset growth rate would prefer internal funding for their investment projects. Keywords - Profitability, Agency Cost, Bankruptcy Cost, Firm Size, Leverage, Firm Growth, Risk

Item Type: Article
Subjects: A General Works > AC Collections. Series. Collected works
Divisions: Fakultas Ekonomi dan Bisnis
Depositing User: Dr., MM. Eka Handriani
Date Deposited: 17 Dec 2020 12:10
Last Modified: 04 Feb 2021 08:35
URI: http://repository.undaris.ac.id/id/eprint/114

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