Abstract
ABSTRACT The purpose of study was to analyze variables that determine capital structure of nonfinancial companies in Indonesia based on pecking order theory. There are five variables observed namely, profitability, firm size, asset growth, asset structure, and liquidity. The population were non-financial companies listed on Indonesia Stock Exchange during 20102016 and published annual financial statements in 2009-2016. This study used census technique. Population consisted of 280 companies. Study used secondary data were data of annual financial statements during 2009-2016. Data obtained from BEI website and Indonesian Capital Market Directory. This study used multiple regression models for panel data to predict relationship between independent and dependent variables. Result showed that profitability, firm size, and asset structure had significant effect on capital structure. Other variables namely asset growth and liquidity had non-significant effect on capital structure. Study concluded that profitability is the determinant variable of capital structure on non-financial firms in Indonesia based on pecking order theory approach. The study also found that another capital structure determinant variable namely firm size and asset structure tends to follow trade-off theory. KEY WORDS Determinants, capital structure, Pecking Order Theory, economy.
Highlights
The selection of the right capital structure will provide an opportunity for companies to improve performance, ensure the sustainability of operations and achieve strategic objectives (Hossain and Hossain, 2015)
After research conducted by Modigliani and Miller emerging capital structure theories, one of these theories is the pecking order theory
The pecking order theory is a capital structure theory based on the selection of funding sources based on the funding sequence put forward by Myers in 1984
Summary
The development of the business world in the current era of globalization requires all large- and small-scale companies to compete with each other so that they can maintain and advance the lives of their companies. The pecking order theory explains why companies with high profitability generally little debt have, not because they have a low debt ratio target but because they do not need external funds (Brealey et al, 2014: 469). Based on the determinants of capital structure as previously mentioned by the researchers, there are several factors that are often examined but get different empirical results (research gap), so it is interesting to be examined again. These factors include: profitability, company size, company growth, asset structure, and liquidity
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
