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Determinants of Capital Structure and Capital Structure Target of Indonesian Infrastructure Companies

Raissa Refita Pramudi, Subiakto Soekarno


Abstract. Construction of infrastructure in Indonesia was one of the main developments in the reign of Jokowi, period 2015-2019. Encouraged by the government and industrial revolution, many companies required additional capital for its development. It changed capital structure and might disturb the optimality of capital structure. Companies in the infrastructure sector had higher current capital expenditure compared to other sectors. Managers had to put more attention on the capital structure of infrastructure companies because it has to be managed properly in order to maximize company value as a company goal. This research aimed to analyze determinants of capital structure, determinants of capital structure target, and the speed of adjustment of infrastructure companies. The population is all companies in infrastructure, utilities, and transportation sector listed in Indonesia Stock Exchange. This research used secondary data from audited company reports to be analyzed using unbalanced panel data regression with GLS estimators. The models used are static and dynamic capital structure based on the trade-off theory. Determinants of capital structure based on static model is profitability, tangibility, and growth. Profitability and tangibility have positive significant effect on leverage ratio, while growth has negative significant effect. Determinant of capital structure target based on dynamic model is profitability. It has negative significant effect on leverage ratio target. Regression of dynamic model showed that there was an optimal target of capital structure in infrastructure companies that was being adjusted with adjustment speed of 49% per year. It also indicated that infrastructure companies need 6 years 10 month to close the gap between current and optimal target of capital structure. Findings of this research are expected to help manager in financing management and enrich financial literature.

Keywords: static capital structure; dynamic capital structure; speed of adjustments; infrastructure


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