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The Role of Business Risk and Non Debt Tax Shields to Debt to Equity Ratio on Pharmacy Listed Companies in Indonesia

Author

Listed:
  • Suratno

    (Magister Akuntansi, University of Pancasila, Jakarta, Indonesia)

  • Syahril Djaddang

    (Magister Akuntansi, University of Pancasila, Jakarta, Indonesia,)

  • Imam Ghozali

    (Faculty of Econoimica and Business, Diponegoro University, Semarang, Indonesia.)

Abstract

The purpose of this study was to analyze the effect of interest earned time and business risk effect on debt to equity ratio (DER) and to determine the role of non debt tax shields (NDTSs) moderate the relationship between time interests earned and business risk on capital structure. There are 12 companies of pharmaceutical industries in Indonesia and the ones that meet the requirements are only nine pharmaceutical industries. The data are analyzed and interpreted using the analysis tool of structure equation modeling (SEM) with WarpPLS 5.0. Program is Variance or component based SEM is used to analyze hypotheses. The study concluded that time interest earned and interest earned time interaction with tax debt non shields no significant effect on DER and to variable business risk and business risk interactions with NDTSs significant effect on DER. The results of this study are NDTSs strengthen the relationship between the business risk of the DER which correspond to trade off theory, where the company made tax savings by using additional debt invested on fixed assets when the level of business risk is low and does not use additional debt when the company's business is high risk.

Suggested Citation

  • Suratno & Syahril Djaddang & Imam Ghozali, 2017. "The Role of Business Risk and Non Debt Tax Shields to Debt to Equity Ratio on Pharmacy Listed Companies in Indonesia," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 73-80.
    • Handle: RePEc:eco:journ1:2017-02-10
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    Cited by:

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    2. Muhammad Asif Joyo & Nawaz Ahmad & Ghulam Mustafa Shaikh, 2017. "The Role Of Business Risk And Non Debt Tax Shields On Capital Structure: A Study Based On Cement Sector In Pakistan," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 13(2), pages 36-49.

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    More about this item

    Keywords

    Debt to Equity Ratio; Time Interest Earned; Business Risk; Non Debt Tax Shields;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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