Firm characteristics, financial market and Macroeconomic determinants of capital structure: Indonesian evidence

Capital structure is combination of debt and equity that is used by firms as the financial sources. The capital structure has correlation with financial distress and bankruptcy, so it is important for firms to decide the capital structure on a safe level. The studies on determinants of capital structure have been developing and the new evidences had shown that capital structure is affected by not only firms’ internal factors, but also external factors. The purpose of this study was to identify the determinants of firm’s capital structure in Indonesia, in study internal and external factors of firm, such as firm characteristics, financial market and macroeconomic conditions. This study used data from 158firms (non-financial) listed in Indonesia Data Exchange (IDX) during 2005-2014. System-GMM (generalized method of moments) as the latest development of dynamic panel data regression was used to estimate the regression equation. The empirical results showed that firm characteristics, financial market and macroeconomic conditions have significant effect on the capital structure. These results have practical implications to the corporate managers, investors, policymakers and government.