The Effect Of Company Growth, Profitability, Firm Size, Asset Structure And Managerial Ownership On Capital Structure Policies In The Perspective Of The Pecking Order Theory In Service Companies Listed On The Indonesia Stock Exchange

Feb 27, 2025 by ADMIN 234 views

The Effect of Company Growth, Profitability, Firm Size, Asset Structure, and Managerial Ownership on Capital Structure Policies in the Perspective of the Pecking Order Theory in Service Companies Listed on the Indonesia Stock Exchange

Introduction

The capital structure of a company is a crucial aspect of its financial management, as it determines the composition of its financing and has a significant impact on its overall performance. In the context of service companies listed on the Indonesia Stock Exchange, understanding the factors that influence capital structure policies is essential for making informed decisions about funding sources. This study aims to investigate the effect of company growth, profitability, firm size, asset structure, and managerial ownership on capital structure policies in service companies listed on the Indonesia Stock Exchange, using the pecking order theory as a framework.

Background

The pecking order theory, proposed by Myers and Majluf (1984), suggests that companies have a preference for internal financing over external financing, and that the order of financing preference is as follows: retained earnings, debt, and equity. This theory is based on the idea that companies have different levels of access to internal and external funding sources, and that they prefer to use the most readily available source of funding. In the context of service companies listed on the Indonesia Stock Exchange, understanding the factors that influence capital structure policies is essential for making informed decisions about funding sources.

Methodology

This study is a causal research and replication of previous studies, with a population of service companies listed on the Indonesia Stock Exchange. The data used comes from financial statements and annual reports of service companies listed on the Indonesia Stock Exchange for the 2011-2013 period. Purposive sampling method is used to select samples, producing 33 companies as research objects. Data obtained from www.idx.co.id and analyzed using multiple linear regression after testing classic assumptions.

Hypothesis

The research hypothesis states that company growth, profitability, firm size, asset structure, and managerial ownership have an influence on the company's capital structure in the perspective of pecking order theory.

Results

The results of the study show that:

Company growth has an insignificant positive influence on the capital structure.
Profitability (ROA), company size, and asset structure have a significant negative influence on the capital structure.
Managerial ownership (Mown) has an insignificant negative influence on the capital structure.
Simultaneously, company growth variables, profitability (ROA), company size, asset structure, and managerial ownership (mown) have a significant influence on the capital structure.

Deeper Analysis

The results showed that the pecking order theory applies to service companies listed on the Indonesia Stock Exchange. Companies with high profitability tend to use less debt, because they have easier access to internal funding. Large companies are also associated with lower capital structures, maybe because large companies have better access to the capital market and are able to obtain greater internal funding.

Asset structure also affects the capital structure. Companies with a more capital-intensive asset structure tend to have a lower debt ratio, because large fixed assets can provide better guarantees for creditors.

The effect of managerial ownership on the insignificant capital structure in this study. This may be caused by several factors, such as the low level of managerial ownership in service companies, or the influence of other more dominant factors.

Practical Implications

This research has some practical implications for service company managers:

Increasing the company's profitability will help reduce dependence on external financing.
Maintaining an optimal asset structure can reduce funding costs.
Maintaining good relations with investors and banks can increase access to external funding.

Conclusion

This study concluded that the theory of pecking orders can explain the behavior of the capital structure of service companies listed on the Indonesia Stock Exchange. Profitability, company size, and asset structure are key factors that influence company decisions in choosing funding sources.

Suggestion

Subsequent research can expand the scope of research by including other factors that might affect capital structure, such as risk, leverage, and macroeconomic conditions.

Limitations

This study has some limitations. Firstly, the sample size is relatively small, which may limit the generalizability of the findings. Secondly, the study only focuses on service companies listed on the Indonesia Stock Exchange, which may not be representative of all companies in the service sector.

Future Research Directions

Future research can expand the scope of research by including other factors that might affect capital structure, such as risk, leverage, and macroeconomic conditions. Additionally, future research can investigate the effect of capital structure on company performance, and explore the implications of the pecking order theory for company financing decisions.

References

Myers, S. C., & Majluf, N. S. (1984). Corporate financing and investment decisions when firms have information that investors do not have. Journal of Financial Economics, 13(2), 187-221.

Keywords

Capital structure, pecking order theory, company growth, profitability, firm size, asset structure, managerial ownership, service companies, Indonesia Stock Exchange.

Abstract

This study investigates the effect of company growth, profitability, firm size, asset structure, and managerial ownership on capital structure policies in service companies listed on the Indonesia Stock Exchange, using the pecking order theory as a framework. The results show that profitability, company size, and asset structure have a significant negative influence on the capital structure, while company growth and managerial ownership have an insignificant influence. The study concludes that the theory of pecking orders can explain the behavior of the capital structure of service companies listed on the Indonesia Stock Exchange.
Frequently Asked Questions: The Effect of Company Growth, Profitability, Firm Size, Asset Structure, and Managerial Ownership on Capital Structure Policies in the Perspective of the Pecking Order Theory in Service Companies Listed on the Indonesia Stock Exchange

Q: What is the pecking order theory, and how does it relate to capital structure policies?

A: The pecking order theory, proposed by Myers and Majluf (1984), suggests that companies have a preference for internal financing over external financing, and that the order of financing preference is as follows: retained earnings, debt, and equity. This theory is based on the idea that companies have different levels of access to internal and external funding sources, and that they prefer to use the most readily available source of funding.

Q: What are the key factors that influence capital structure policies in service companies listed on the Indonesia Stock Exchange?

A: The key factors that influence capital structure policies in service companies listed on the Indonesia Stock Exchange are company growth, profitability, firm size, asset structure, and managerial ownership.

Q: What is the relationship between company growth and capital structure policies?

A: The results of the study show that company growth has an insignificant positive influence on the capital structure. This means that company growth does not have a significant impact on the capital structure of service companies listed on the Indonesia Stock Exchange.

Q: What is the relationship between profitability and capital structure policies?

A: The results of the study show that profitability (ROA) has a significant negative influence on the capital structure. This means that companies with high profitability tend to use less debt, because they have easier access to internal funding.

Q: What is the relationship between firm size and capital structure policies?

A: The results of the study show that firm size has a significant negative influence on the capital structure. This means that large companies are associated with lower capital structures, maybe because large companies have better access to the capital market and are able to obtain greater internal funding.

Q: What is the relationship between asset structure and capital structure policies?

A: The results of the study show that asset structure has a significant negative influence on the capital structure. This means that companies with a more capital-intensive asset structure tend to have a lower debt ratio, because large fixed assets can provide better guarantees for creditors.

Q: What is the relationship between managerial ownership and capital structure policies?

A: The results of the study show that managerial ownership (Mown) has an insignificant negative influence on the capital structure. This means that managerial ownership does not have a significant impact on the capital structure of service companies listed on the Indonesia Stock Exchange.

Q: What are the practical implications of this study for service company managers?

A: The practical implications of this study for service company managers are:

Increasing the company's profitability will help reduce dependence on external financing.
Maintaining an optimal asset structure can reduce funding costs.
Maintaining good relations with investors and banks can increase access to external funding.

Q: What are the limitations of this study?

A: The limitations of this study are:

The sample size is relatively small, which may limit the generalizability of the findings.
The study only focuses on service companies listed on the Indonesia Stock Exchange, which may not be representative of all companies in the service sector.

Q: What are the future research directions for this study?

A: Future research can expand the scope of research by including other factors that might affect capital structure, such as risk, leverage, and macroeconomic conditions. Additionally, future research can investigate the effect of capital structure on company performance, and explore the implications of the pecking order theory for company financing decisions.

Q: What are the implications of this study for policymakers and regulators?

A: The implications of this study for policymakers and regulators are:

Policymakers and regulators should consider the pecking order theory when designing policies and regulations related to capital structure and financing decisions.
Policymakers and regulators should also consider the impact of company growth, profitability, firm size, asset structure, and managerial ownership on capital structure policies.

Q: What are the implications of this study for investors and creditors?

A: The implications of this study for investors and creditors are:

Investors and creditors should consider the pecking order theory when making investment and lending decisions.
Investors and creditors should also consider the impact of company growth, profitability, firm size, asset structure, and managerial ownership on capital structure policies.

Q: What are the implications of this study for company managers and directors?

A: The implications of this study for company managers and directors are:

Company managers and directors should consider the pecking order theory when making financing decisions.
Company managers and directors should also consider the impact of company growth, profitability, firm size, asset structure, and managerial ownership on capital structure policies.

Q: What are the implications of this study for the Indonesian economy?

A: The implications of this study for the Indonesian economy are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the global economy?

A: The implications of this study for the global economy are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the service sector?

A: The implications of this study for the service sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the financial sector?

A: The implications of this study for the financial sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the banking sector?

A: The implications of this study for the banking sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the insurance sector?

A: The implications of this study for the insurance sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the securities sector?

A: The implications of this study for the securities sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the accounting sector?

A: The implications of this study for the accounting sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the auditing sector?

A: The implications of this study for the auditing sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the taxation sector?

A: The implications of this study for the taxation sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the regulatory sector?

A: The implications of this study for the regulatory sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the policy-making sector?

A: The implications of this study for the policy-making sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the research sector?

A: The implications of this study for the research sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.

Q: What are the implications of this study for the academic sector?

A: The implications of this study for the academic sector are:

The study provides insights into the capital structure policies of service companies listed on the Indonesia Stock Exchange.
The study highlights the importance of considering the pecking order theory when designing policies and regulations related to capital structure and financing decisions.