The effect of institutional ownership, managerial ownership, free cash flow, firm size and corporate growth on debt policy

Laili Ayu Safitri,Putri Wulanditya

doi:10.14414/tiar.v7i2.958

Abstract

Debt policy is a decision made by a company to obtain funds from outside parties to meet the operational needs of the company. Recent economic development encourages compa-nies to continue to expand their business in order to survive and gain better corporate value. To develop the business, a company needs more funds. And when the funds are not enough, the company will perform debt policy. However, debt policy can be risky and therefore the company should carry out operational activities effectively in order to avoid the risks. This study aims to determine the effect of institutional ownership, managerial ownership, profitability, free cash flow, firm size and corporate growth on debt policy. The data used in this study are secondary data, that is, the financial reports of mining sector companies listed on the Indonesia Stock Exchange 2011-2015. The research is using purposive sampling method consisting of 59 data. Analysis techniques used in this study are classical assumptions and multiple regression analysis. The results show that institutional ownership and profitability have negative effect on debt policy, and free cash flow has positive effect on debt policy, while, managerial ownership, firm size, and corpo-rate growth have no effect on debt policy. The implication of this study is for investors to notice that the debt policy taken by mining companies is influenced by the number of shares owned by the institution, return on equity, and the amount of free cash flow.

Highlights

Along with the recent economic development and the implementation of ASEAN Economic Community in Indonesia since the end of 2015, businessLaili Ayu Safitri: The effect of institutional ...people are required to develop their business in order to compete in the world of business healthily to increase the corporate value
It can be concluded that the first hypothesis is accepted, in which the institutional ownership has a negative effect on debt policy
The second hypothesis (H2) indicates that managerial ownership t count value of 1.177, with a significant level of 0.244 or more than 0.05 which means that managerial ownership has no effect on debt policy

Summary

Introduction

Along with the recent economic development and the implementation of ASEAN Economic Community in Indonesia since the end of 2015, businessLaili Ayu Safitri: The effect of institutional ...people are required to develop their business in order to compete in the world of business healthily to increase the corporate value. Funding decisions can be obtained through both internal and external funding sources. Internal funding sources can be derived from the retained earnings of the company, while external funding sources can obtained from outside the company such as indebtedness to creditors. Decision-making on debt requires effective oversight and control to reduce debt risk. From 2014 to 2016 the amount of debt continued to increase for business expansion in mining sector. The mining sector owned by Bakrie group, that is, PT Bumi Resources, Tbk. had an ever-increasing debt. In 2015 the total debt of PT Bumi Resource, Tbk. was IDR 62.2 trillion, which increased from a total of IDR 51.25 trillion in 2014 (www.bisnis.com, November 2, 2016). In 2016 the company had short-term debt of US $ 220.78 million, long-term debt of US $ 3.6 billion and convertible bonds of US $ 374.7 million (www.bisnis.com, November 2 2016)

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