Firm Size as Moderator to Capital Structure-Its Determinants Relations

Abstract

Objective – Capital structure policy is a strategic decision related to the selection of funding sources. The best mixed of capital structure will produce a low cost of capital, which in turn can maximize the value of the company. This study aims to determine the effect of company size as a moderator on the relationship of capital structure and its determinant factors on manufacturing companies in Indonesia and Malaysia. Methodology – Data were collected from 40 manufacturing companies listed on the Indonesia Stock Exchange and 130 manufacturing companies listed on the Bursa Malaysia during 2008-2017. This study will analyze the determinants of capital structure consisting of liquidity, profitability, tangibility and efficiency as well as company size as a moderating variable. The research method uses panel data regression. Findings – The company size provides a moderating effect on the relationship between capital structure with liquidity, profitability, tangibility and efficiency, and this moderation effect is strengthened in large companies in Indonesia. Instead, this moderation effect is weakening for large companies in Malaysia Novelty – Research shows that the "modified pecking order" model is better able to explain the capital structure, policies of manufacturing companies in Indonesia and Malaysia compared to the traditional pecking order and trade off theory models. Type of Paper: Empirical Keywords: Capital Structure; Pecking Order Theory; Trade Off Theory; Manufacturing Company; Moderating Effect. Reference to this paper should be made as follows: Sari, M; Netti, S.N; Sulastri, S. 2019. Firm Size as Moderator to Capital Structure-Its Determinants Relations, J. Fin. Bank. Review 4 (3): 108–115 https://doi.org/10.35609/jfbr.2019.4.3(4) JEL Classification: G23, G30, G32.