Determinants of capital structures based on the Pecking Order Theory and Trade-off Theory

Hotman Jefferson Simatupang, Lilik Purwanti, Endang Mardiati

Abstract


Determining the decision of the company capital structure is a very important thing because it influences the development of resources potency and the sustainability of a company. Related to deciding on the capital structure, there is still different perception so far between pecking order theory and trade-off theory. This research aims to know the effect of profitability, sales growth, non-debt tax shield, the tangibility of assets, and funding surplus towards the capital structure of non-financial companies listed in Indonesia Stock Exchange (IDX) period 2014-2017. The research method used was Causal-Comparative Research with samples investigated were panel data of 154 non-financial companies experiencing funding surplus with total observation in the amount of 616. The result of this research shows that non-debt tax shield and growth sales do not affect the company capital structure. Besides that, funding surplus has a positive effect on the capital structure, while profitability and tangibility assets have a negative effect on the capital structure.

JEL Classification: C33, G02, G32

DOI: https://doi.org/10.26905/jkdp.v23i1.2579


Keywords


Capital Structure; Pecking Order Theory; Trade-off Theory

References


Abdulla, Y. (2017). Capital structure in a tax-free economy: evidence from UAE. International Journal of Islamic and Middle Eastern Finance and Management, 10(1), 102-116. https://doi.org/10.1108/IMEFM-11-2015-0144

Alipour, M., Mohammadi, M. F. S., & Derakhshan, H. (2015). Determinants of capital structure: An empirical study of firms in Iran. International Journal of Law and Management, 57(1), 53 – 83. https://doi.org/10.1108/IJLMA-01-2013-0004

Al-Najjar, B., & Hussainey, K. (2009). The association between dividend payout and outside directorships. Journal of Applied Accounting, 10(1), 4-19

Amidu, M. (2007). Determinants of capital structure of banks in Ghana: An empirical approach. Baltic Journal of Management, 2(1), 67-79. https://doi.org/10.1108/17465260710720255

Bhama, V., Jain, P. K., & Yadav, S. S. (2016). Testing the pecking order theory of deficit and surplus firms: Indian evidence. International Journal of Managerial Finance, 12(3), 335-350. https://doi.org/10.1108/IJMF-06-2014-0095

Benkraiem, R., & Gurau, C. (2013). How do corporate characteristics affect capital structure decisions of French SMEs? International Journal of Entrepreneurial Behavior & Research, 19(2), 149-164. https://doi.org/10.1108/13552551311310356

Boateng, A. (2004). Determinants of capital structure: Evidence from international joint ventures in Ghana. International Journal of Social Economics, 31(1/2), 56-66. https://doi.org/10.1108/03068290410515411

Brigham, E. F., & Houston, J. F. (2001). Manajemen Keuangan. Edisi Kedelapan. Jakarta: Erlangga.

Chadha, S., & Sharma, A. (2015). Determinants of capital structure: An empirical evaluation from India. Journal of Advances in Management Research, 12(1), 3-14. https://doi.org/10.1108/JAMR-08-2014-0051

Chakrabarti, A., & Chakrabarti, A. (2018). The capital structure puzzle – Evidence from Indian energy sector. International Journal of Energy Sector Management, https://doi.org/10.1108/IJESM-03-2018-0001.

Chiang, Y‐H., Cheng, E. W. L., & Lam, P. T. I. (2010). Epistemology of capital structure decisions by building contractors in Hong Kong. Construction Innovation, 10(3), 329-345. https://doi.org/10.1108/14714171011060105

DeAngelo, H., & Masulis, R. (1980). Optimal capital structure under corporate and personal taxation. Journal of Financial Economics, 8(1), 3-29. https://doi.org/10.1016/0304-405X(80)90019-7

Eriotis, N., Vasiliou, D., & Ventoura‐Neokosmidi, Z. (2007). How firm characteristics affect capital structure: An empirical study. Managerial Finance, 33(5), 321-331. https://doi.org/10.1108/03074350710739605

Frank, M., & Goyal, V. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217-248. https://doi.org/10.1016/S0304-405X(02)00252-0

Ganguli, S. (2013). Capital structure – Does ownership structure matter? Theory and Indian evidence. Studies in Economics and Finance, 30(1), 56-72. https://doi.org/10.1108/10867371311300982

Gomez, G., Rivas, A., & Bolaños, E. (2014). The determinants of capital structure in Peru. Academia Revista Latinoamericana de Administración, 27(3), 341-354. https://doi.org/10.1108/ARLA-01-2014-0007

Haron, R. (2016). Do Indonesian firms practice target capital structure? A dynamic approach. Journal of Asia Business Studies, 10(3), 318-334. https://doi.org/10.1108/JABS-07-2015-0100

Hussainey, K., & Aljifri, K. (2012). Corporate governance mechanisms and capital structure in UAE. Journal of Applied Accounting Research, 13(2), 145-160. https://doi.org/10.1108/09675421211254849

Indriantoro, N., & Supomo, B. (2011). Metodologi Penelitian Bisnis untuk Akuntansi dan Manajemen. Edisi Pertama. Yogyakarta: BPFE.

Karadeniz, E., Kandir, S., Balcilar, M., & Onal, Y. (2009). Determinants of capital structure: Evidence from Turkish lodging companies. International Journal of Contemporary Hospitality Management, 21(5), 594-609. https://doi.org/10.1108/09596110910967827

Kayo, E. K., & Kimura, H. (2010). Hierarchical determinants of capital structure. Journal of Banking & Finance, 35(2), 358–371. https://doi.org/10.1016/j.jbankfin.2010.08.015

Miglo, A. (2016). Capital Structure in Modern World. Ontario: Springer Nature.

Monica, J., & Pramest, M. (2017). Pengujian Pecking Order Theory terhadap perusahaan surplus non-keuangan di Bursa Efek Indonesia. Jurnal Manajemen Teknologi, 16(2), 186-197. http://dx.doi.org/10.12695/jmt.2017.16.2.6

Myers, S. C. (2001). Capital structure. The Journal of Economic Perspectives, 15(2), 81–102. http://dx.doi.org/10.1257/jep.15.2.81

Robinson, T. (2009). International Financial Management Analysis: Investment series. Hoboken, New Jersey: John Wiley & Sons, Inc.

Ross, S., & Westerfield, R. (2008). Modern Financial Management. Eight Edition. New York: Mc Graw-Hill Companies.

Sergieschu, L., & Vaidean, V-L. (2014). Determinant factors of the capital structure of a firm – An empirical analysis. Procedia Economics and Finance, 15, 1447-1457. https://doi.org/10.1016/s2212-5671(14)00610-8

Serrasqueiro, Z., & Caetano, A. (2015). Trade-off theory versus pecking order theory: Capital structure decisions in a peripheral region of Portugal. Journal of Business Economics and Management, 16(2), 445–466. https://doi.org/10.3846/16111699.2012.744344

Sjahrial, D. (2014). Manajemen Keuangan Lanjutan. Edisi Revisi. Jakarta: Mitra Wacana Media.

Stretcher, R., & Johnson, S. (2011). Capital structure: Professional management guidance. Managerial Finance, 37(8), 788-804. https:/doi.org/10.1108/03074351111146229

Sugianto, H. (2013). Analisis determinan struktur modal berdasarkan pecking order theory pada perusahaan manufaktur yang terdaftar di BEI periode 2007-2011. Tesis. Universitas Indonesia.

Shyam-Sunder, L., & Myers, S. C. (1999). Testing static trade-off theory against pecking order model of capital structure. Journal Financial Economics, 51(2), 219-244. https://doi.org/10.3386/w4722

Tong, G., & Green, C. (2005). Pecking order or trade-off hypothesis? Evidence on the capital structure of Chinese companies. Applied Economics, 37(19), 2179-2189. https://doi.org/10.1080/00036840500319873

Vasiliou, D., Eriotis, N., & Daskalakis, N. (2009). Testing the pecking order theory: The importance of methodology. Qualitative Research in Financial Markets, 1(2), 85-96. https://doi.org/10.1108/17554170910975900

Wald, J. (1999). How firm characteristics affect capital structure: An international comparison. Journal of Financial Research, 22(2), 161-87. https://doi.org/10.1111/j.1475-6803.1999.tb00721.x

Yazdanfar, D., & Öhman, P. (2015). The impact of credit supply on sales growth: Swedish evidence. International Journal of Managerial Finance, 11(3), 329-340. https://doi.org/10.1108/IJMF-07-2014-0110

Zhang, R., & Kanazaki, Y. (2007). Testing static trade-off against pecking order models of capital structure in Japanese firms. International Journal of Accounting & Information Management, 15(2), 24-36. https://doi.org/10.1108/18347640710837335


Full Text: PDF

Refbacks

  • There are currently no refbacks.





WhatsApp Image 2019-04-18 at 10.04.27



Journal of Finance and Banking

Diploma Program of Banking and Finance
Faculty of Economics and Business University of Merdeka Malang

Mailing Address:

2nd-floor Banking and  Finance Building, Terusan Raya Dieng Street No.57 Malang, 65146, East Java, Indonesia
Phone/WhatsApp: +628123321664; Fax. +62 341 580511
Email: jkpunmermlg@yahoo.com


Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.