Factors Affecting Target Leverage in Companies Listed in Indonesia Stock Exchange from 2014 to 2018

Abstract

This study aims to find out whether companies in Indonesia have the existence of target capital structure and factors that affect target leverage for the period 2014 to 2018. This study uses a dynamic partial adjustment model with a generalized method of moments estimator. The company's leverage target is influenced not only by companyspecific factors but also by corporate governance variables so that the corporate governance variable is included in this study. The results of this research indicate that companies in Indonesia appear to have target leverage and are reported to adjust their leverage towards the target level with the adjustment speed of Indonesian firms is 50,29% thus it took 1,98846 years to reach the leverage target. Firm-specific factors such as profitability, size, growth, and tangibility have a significant effect, and corporate governance factors such as board size and family ownership have a significant effect on leverage. The sample of companies is only in Indonesia so that further research can be expanded by adding companies in other countries besides Indonesia and the addition of independent variables. This study of the listed firms in Indonesia contributes to the literature by examining the speed of adjustment and the determinants of optimal leverage.

Effect of corporate governance on the capital structure on non-financial firms in developing countries: A Qualitative Approach

“…The other outcome follows the same pattern of inconsistent results, especially the methodology with at least two or more articles despite the studies being conducted in different locations. For instance, the GMM conducted in the countries of South Africa had negative results (Sewpersadh 2019), and South Korea had a positive outcome (Kamila & Gandakusuma 2021). This assertion was further reinforced by studies that adopted the Fixed effects model (Amin et al, 2022;Ehikioya et al, 2021).…”