Dynamic capital structure in Indonesian case: do industry-specific variables affect adjustment speeds?


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The authors investigate the firm’s capital structure in the dynamic framework and adjustment speeds toward target leverage among Indonesian firms from 2005 to 2016. The sample firms are 407 non-financial listed companies and classified into 8 sectors based on Jakarta Industrial Sector Classification (JASICA).
The explanatory variables consist of firm-level variables viz. size, growth opportunity, profitability, asset structure, liquidity, and firm risk; as well as industry-specific variables viz. industry concentration, munificence, and dynamism. By using dynamic adjustment model, it was found Indonesian firms have target leverages, and they tend to adjust toward their desired debt ratio. Based on country-level analysis, adjustment speeds toward target leverage are from around 30.20% to 36.97% per year. Meanwhile, on sector-level analysis, paces of adjustment indicate variety of adjustment speeds across sectors ranged from 26.00% to 48.32% per year.
The authors also demonstrate that industry-specific variables have substantial influences on adjustment speeds toward target leverage. Industry concentration and industry munificence positively affect adjustment speeds, whereas however industry dynamism fails to show significant effect.

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    • Table 1. Descriptive statistics
    • Table 2. Correlation matrix and VIF
    • Table 3. Full sample analysis using firm-specific determinants
    • Table 4. Full sample analysis using firm-specific and industry-specific determinants
    • Table 5. Across sectors analysis using firm-specific determinants
    • Table 6. Speed of adjustment (λ) across sectors
    • Table 7. Impact of industry specific variable on SOA