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Firm Level, Ownership Concentration and Industry Level Determinants of Capital Structure in an Emerging Market: Indonesia Evidence

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  • Razali Haron

    (IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia, Jalan Gombak, 53100 Kuala Lumpur, Malaysia)

Abstract

This study evaluates the impact of firm and industry level determinants plus ownership concentration on the capital structure decisions in Indonesia. This study finds that growing firms seem to employ high level of debt, taking advantage of the tax shield as explained by the trade-off theory. However, if the firms are operating in a highly dynamic environment they tend to take on less debt as to avoid bankruptcy risk. Known to be in a highly concentrated ownership structure, firms in Indonesia opt to debt financing perhaps to act as a controlling mechanism to mitigate agency conflicts that may exist between the large controlling shareholders and the minority. Aged and highly profitable firms with high tangible and intangible assets and liquidity level operating in a high munificence environment follow the pecking order theory. The insights on the impact of industry characteristics are novel especially on emerging market thus fill the gap in the literature.

Suggested Citation

  • Razali Haron, 2018. "Firm Level, Ownership Concentration and Industry Level Determinants of Capital Structure in an Emerging Market: Indonesia Evidence," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 14(1), pages 127-151.
    • Handle: RePEc:usm:journl:aamjaf01401_127-151
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    2. Ngatno & Apriatni, Endang P, 2020. "Moderation Effects of Organisational Environment on the Relationship between Capital Structure and Financial Performance of Central Java Rural Banks, Indonesia," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 10(1), pages 78-93, January.
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