Abstract
This study aims to analyze heterogeneity of speed of adjustment on basic industry, consumer goods, and misceleeneous companies. The population in this study uses basic industry, consumer goods, and miscellenoeus companies listed on the Indonesia Stock Exchange in 2009-2018 period. The method of determining the sample using a pusposive sampling technique based on criteries determined by researchers. We employ two-step partial adjustment model and use measure of book leverage and firm characteristic; profitability, size, tangibility, and growth which has an influence leverage target to estimate speed of adjustment. For three industries, there is evidence of heterogeneity of speef adjustment. The result showed that speed of adjustment 24% of basic industry, 37.1% of consumer goods, and 27.3% of miscellaneous industry.
Highlights
Each company has a different composition of capital structure even though it is in the same industry (Riyantina & Ardiansari, 2017)
The present study investigates the existence of target capital structure, speed of adjustment and factors affecting the speed of adjustment
Based on the results of data analysis and discussion, it can be concluded that there is a speed of capital structure adjustment towards the leverage target in manufacturing companies in the basic industry, consumer goods, and miscellaneous sectors listed on the Indonesia Stock Exchange (IDX) in 2009-2018
Summary
Each company has a different composition of capital structure even though it is in the same industry (Riyantina & Ardiansari, 2017). The company’s capital structure is a combination of long-term debt and equity that the company uses to finance its operations (Abor, 2007). Pecking order theory explains the company’s funding hierarchy starting from the safest, namely companies prioritizing the use of internal funding (Pudak, 2014). The optimal capital structure can be observed when the company follows the funding hierarchy; the company will use internal funding, followed by external funding, and equity funding (Baskin, 1989). The manufacturing industries listed on the Indonesia Stock Exchange consist of basic industry, consumer goods and miscellaneous sectors (www.idx.co.id). The manufacturing industry in Indonesia is an economic driver that has an influence on other sectors. The manufacturing industry contributes to economic growth, which is reflected in the value of the Gross Domestic Product (www.bi.go.id)
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