THE INFLUENCE OF FIRM-SPECIFIC FACTORS TOWARDS FINANCIAL LEVERAGE OF MINING SECTOR IN INDONESIA

Abstract

This research examines factors influencing financial leverage considering that the use of debt is very essential in financing decision. The high level of leverage employed by the mining sector yet low earnings per share generated during the observation period leads to a question, ‘What are the factors, other than earnings per share, that influence leverage decision?’. In order to answer the question, this research examines whether there are partial and simultaneous significant influence of return on assets, current ratio, firm size, and assets tangibility towards debt to equity ratio. Annual data of 10 companies in mining sector listed on Indonesia Stock Exchange (IDX) for 5-year period (2012-2016) is analyzed by using multiple regression analysis, adopting fixed effect model. Classical assumption test is conducted to make sure the data obtained will lead to valid results. The results show that return on assets and current ratio partially influence debt to assets ratio negatively and significantly. These profitability and liquidity will provide internal source of funds, so less leverage is needed. While firm size and assets tangibility have partial significant positive influence towards debt to assets ratio. Larger firms and firms with more tangible assets tend to employ more leverage. Simultaneously, those independent variables influence debt to assets ratio by 90.7521%.