Capital structure and dividend policies of Indonesian firms

Abstract

This paper investigates the capital structure and dividend policies of a sample of large publicly traded Indonesian firms. The survey results show that our sample firms seem to have good access to different sources of funds, especially banks and the equity market. There is no evidence that asymmetric information with the banks is a significant problem. The firms expect the banks to fairly assess their future prospects, charge reasonable, if not low, interest rates on loans, and commit to provide resource to the firms in the event of insolvency. There is, however, some support that the firms operate as if there exist an optimal debt ratio. Overall, our results would be consistent with a world of large profitable firms that have good access to major alternative sources of funds, and yet, these firms are willing, for financing at the margin, to use their superior information to their advantage. Our regression results generally confirm the survey data. The excess debt capacity model shows the most satisfactory results.