Abstract
This study aims to contribute to the emergence of the literature focusing on exploring the factors influencing the financing decision, as well as examining the relationship between the firm size, profitability and firm growth towards the corporate debt. Questions such as how relevant firm size, profitability and firm growth to debt are, quantitatively, had not been fully answered in the business literature. The purpose of this study is to fill this large gap by examining the role of the firm size, profitability, investment and firm growth for the corporate debt. This study tries to examine the determinants of debt in the financial literature which include size, growth, business risk, and profitability in accordance with the capital structure theory, in manufacturing firms in Indonesia. The sample contained financial data from 150 firms for the period 2012–2017. The results showed that the manufacturing firms in Indonesia had high debt levels, especially the size, profitability, firm growth and profitability had proven to be the debt determinants, which also confirmed the Pecking Order Theory. This study also found that the management preference of manufacturing firms in Indonesia for risk was the risk-seeker or risk-neutral ones. This finding implies that the choice of funding sources originating from debt still provided greater returns compared to the capital cost needed due to business uncertainties.
Highlights
The firm’s funding sources for investment are mostly fulfilled through equity and debt
This study is about to scrunitize the financing decision of Indonesian manufacturing firms listed in the Indonesia Stock Exchange by using size, growth, business risk, and profitability as independent variables
The findings showed that manufacturing firms in Indonesia had high debt levels, especially the size, profitability and firm growth had proven to be the debt determinants
Summary
The firm’s funding sources for investment are mostly fulfilled through equity and debt. Decisions about funding sources are one of the most important issues and often result in differences in different research results between the researchers and each other, which caused great controversy in the last few decades. Debt is an instrument that is very sensitive to changes in the corporate value determined by the condition of the capital structure (Modigliani & Miller, 1958). It has a positive effect on the capital structure, because large firms tend to have lower income volatility and net cash flow (Fama & French, 2000). The concept of firm size is quite widely used to the express capital structure (Serrasqueiro & Caetano, 2015)
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
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 callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
