Determinants of capital structure in Indonesian companies from 2011-2022

Wilar, Gideon Caprio (2023) Determinants of capital structure in Indonesian companies from 2011-2022. Bachelor thesis, Universitas Pelita Harapan.

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Abstract

The aim of this research is to analyze the factors influencing capital structure in companies across Indonesia. Debt to Asset Ratio (DAR) and Debt to Equity Ratio (DER) are utilized as the dependent variables, while the independent variables encompass profitability, growth opportunities, tangibility, size, dividend policy, liquidity, and business risk. The research sample includes companies from all sectors in Indonesia, except for the banking sector. The analytical method employed is panel regression. Additionally, this study incorporates the use of Random Forest's variable importance analysis. The result showed that profitability, liquidity, tangibility, and dividends play vital roles in both DAR and DER models. Favorable profitability and liquidity tend to lower both DAR and DER, while substantial tangible assets elevate them. Moreover, companies distributing more significant dividends tend to carry lower debts. Hence, companies should focus on maintaining good profitability, which directly correlates with sales. However, while distributing dividends, caution is necessary to ensure ongoing liquidity, enabling firms to meet short and long-term obligations.

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