DETERMINANTS OF FIRM’S CAPITAL STRUCTURE IN INDONESIA’S CONSTRUCTION INDUSTRY WITH AGE AND FIRM SIZE AS CONTROL VARIABLE

Abstract

The capital structure of companies holds paramount significance, exerting a profound impact on their financial health. In particular, companies grappling with substantial debt loads may find themselves burdened and constrained. This study endeavors to scrutinize the influence of various factors, including profitability, growth, non-debt tax shield, and asset tangibility, on capital structure. Additionally, this research incorporates firm age and size as control variables to account for potential variations. A purposive sampling method was employed, encompassing a sample of 21 companies within the construction sector, spanning both infrastructure and property, and real estate domains, listed on the Indonesia Stock Exchange during the period from 2013 to 2022. To conduct our analysis, we utilized STATA for both descriptive statistical examination and panel data regression analysis. Our findings reveal that profitability and asset tangibility exhibit a negative correlation with capital structure, suggesting that firms with higher profitability and more tangible assets tend to employ lower leverage. Conversely, growth displays a positive relationship with capital structure, indicating that expanding firms may utilize higher leverage to fund their growth initiatives. Furthermore, our analysis reveals that the impact of non-debt tax shields on capital structure is insignificant. The study also carefully controlled for variations in the debt-to-equity ratio attributable to the age and size of the companies. The outcomes of this research contribute valuable insights to the field of financial management, facilitating a deeper understanding of the determinants of capital structure in the context of construction companies in Indonesia. These findings have the potential to assist practitioners and policymakers in making informed decisions related to capital structure, ultimately aiding in the resolution of contemporary financial challenges.