Proceedings of the 3rd International Conference on Economics, Business and Economic Education Science, ICE-BEES 2020, 22-23 July 2020, Semarang, Indonesia

Research Article

Factors Affecting Target Leverage in Companies Listed in Indonesia Stock Exchange from 2014 to 2018

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  • @INPROCEEDINGS{10.4108/eai.22-7-2020.2307929,
        author={Nurul  Kamila and Imo  Gandakusuma},
        title={Factors Affecting Target Leverage in Companies Listed in Indonesia Stock Exchange from 2014 to 2018},
        proceedings={Proceedings of the 3rd International Conference on Economics, Business and Economic Education Science, ICE-BEES 2020, 22-23 July 2020, Semarang, Indonesia},
        publisher={EAI},
        proceedings_a={ICE-BEES},
        year={2021},
        month={5},
        keywords={leverage capital structure dynamics speed of adjustment corporate governance generalized method of moments},
        doi={10.4108/eai.22-7-2020.2307929}
    }
    
  • Nurul Kamila
    Imo Gandakusuma
    Year: 2021
    Factors Affecting Target Leverage in Companies Listed in Indonesia Stock Exchange from 2014 to 2018
    ICE-BEES
    EAI
    DOI: 10.4108/eai.22-7-2020.2307929
Nurul Kamila1,*, Imo Gandakusuma1
  • 1: Universitas Indonesia, Indonesia
*Contact email: kamila.n010@gmail.com

Abstract

This study aims to find out whether companies in Indonesia have the existence of target capital structure and factors that affect target leverage for the period 2014 to 2018. This study uses a dynamic partial adjustment model with a generalized method of moments estimator. The company's leverage target is influenced not only by company-specific factors but also by corporate governance variables so that the corporate governance variable is included in this study. The results of this research indicate that companies in Indonesia appear to have target leverage and are reported to adjust their leverage towards the target level with the adjustment speed of Indonesian firms is 50,29% thus it took 1,98846 years to reach the leverage target. Firm-specific factors such as profitability, size, growth, and tangibility have a significant effect, and corporate governance factors such as board size and family ownership have a significant effect on leverage. The sample of companies is only in Indonesia so that further research can be expanded by adding companies in other countries besides Indonesia and the addition of independent variables. This study of the listed firms in Indonesia contributes to the literature by examining the speed of adjustment and the determinants of optimal leverage.