Debt policy of military-connected firms in Indonesia


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Indonesia has a thin capitalization policy since 2015. It restricts the maximum interest expense that can be deductible from corporate tax payable. This paper discusses the association between boards with military background and the debt policy of firms, taking into account the thin capitalization policy. This study used a sample of 2,330 firm-year observations from companies listed on Indonesia Stock Exchange during 2010–2019. A moderated analysis regression was employed to analyze the association of each variable. The result reveals a significant positive correlation with a t-value of 2.14 at a confidence level of 95% between military-connected firms and debt policy. The same correlation also occurred between board of commissioners with the military background and debt policy with a t-value of 2.18 at a 95% confidence level. Meanwhile, the correlation between these variables became significantly negative after the implementation of thin capitalization policy. CEM and Heckman’s two-stage method were used to validate the findings. This study is for a listed company to consider the appointment of military background in a board of commissioner position after a period of thin capitalization policy.

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    • Table 1. Sample selection and breakdown
    • Table 2. Descriptive statistics
    • Table 3. Pearson correlation
    • Table 4. T-test
    • Table 5. Military-connected firms and debt policy
    • Table 6. Military-connected firms, debt policy, and thin capitalization policy
    • Table 7. CEM regression
    • Table 8. Heckman’s two-stage regression
    • Table A1. Based on the divided sample
    • Table B1. Relationship between military-connected firms and debt policy
    • Table C1. Interacting role of firm size in the relationship between military-connected firms and debt policy
    • Formal Analysis
      Nurul Fitriani
    • Investigation
      Nurul Fitriani
    • Methodology
      Nurul Fitriani, Gery Lusiano Firmansah
    • Software
      Nurul Fitriani
    • Visualization
      Nurul Fitriani
    • Writing – original draft
      Nurul Fitriani, Gery Lusiano Firmansah
    • Conceptualization
      Gery Lusiano Firmansah, Iman Harymawan
    • Data curation
      Gery Lusiano Firmansah
    • Project administration
      Gery Lusiano Firmansah
    • Resources
      Iman Harymawan
    • Supervision
      Iman Harymawan
    • Validation
      Iman Harymawan
    • Writing – review & editing
      Iman Harymawan