Title: LEVERAGE DEVIATION AND CAPITAL STRUCTURE BEHAVIOR OF COMPANIES LISTED ON THE INDONESIAN STOCK EXCHANGE.
Author: Dwi Cahyaningdyah
Item Type : Thesis (Thesis)
Affiliations: Master of Management Science Study Program, Faculty of Economics and Business, Universitas Airlangga , Surabaya, Indonesia
Publisher: Universitas Airlangga
Abstract
How companies fund investments is an important question that is still being researched in corporate finance because the company's decision in choosing funding sources will affect the company's capital structure. The three dominant theories researched in capital structure theory are trade off theory, pecking order theory and market timing theory. In capital structure research, these three theories began to be researched as complements and no longer as a single theory (stand-alone theory). It is very possible that companies consider two funding behaviors represented by two different theories simultaneously in corporate funding decisions. This research examines trade off theory and market timing theory as complements that can explain the behavior of the capital structure of companies listed on the Indonesia Stock Exchange. This research aims to examine the influence of timing behavior (which represents market timing theory) on targeting behavior (which represents trade off theory) by taking into account the direction and magnitude of the deviation, so that it can be identified in which conditions timing behavior dominates targeting behavior and vice versa in which conditions where timing behavior does not affect targeting behavior. The analysis was carried out using a two-step partial adjustment model, where in the first stage the target leverage per industry was estimated using unbalance panel data with eviews 10. The second stage was estimated the speed of adjustment and the influence of timing behavior on the targeting behavior of the companies in the research sample. Estimation of the speed of adjustment and analysis of the influence of timing behavior on targeting behavior was carried out using robust least squares regression with Eviews 10. The results of hypothesis testing show that there is a phenomenon of asymmetry in the speed of adjustment between the group of companies that deviate above the leverage target and the group of companies that deviate below the leverage target. The overleveraged group of companies has a higher adjustment speed than the underleveraged group. These results confirm the notion that companies that deviate above the leverage target bear greater deviation costs so that the pressure to return to the target is also greater as a result of which the speed of adjustment towards the leverage target is also higher. Further testing was carried out on four analysis groups which were formed based on the direction and magnitude of the deviation. Regression analysis for each group shows that the speed of adjustment of the four analysis groups is statistically significant, and economically shows that there are differences in the speed of adjustment between the groups being compared (economically significant). The group of companies that deviate far above the target shows the highest speed of adjustment because the cost pressure they bear is greater than other groups, while the group of companies that deviate closely below the target shows the lowest speed of adjustment because this group of companies bears the smallest deviation costs. compared to other groups of companies. However, statistical testing shows that the speed of adjustment between analysis groups is not statistically different (statistically insignificant). Testing the effect of timing on targeting behavior shows that in all analysis groups the speed of adjustment after taking timing into account is no different from the speed of adjustment before taking timing into account. In the overleveraged group and groups that deviated far from the leverage target (far under and far above groups) this condition was in accordance with what was hypothesized. In these three groups, the pressure to immediately return to target is great so that whatever market conditions, companies in these three groups will still prioritize returning to target leverage. In the underleverage group and groups that deviate close to the target (close under and close above) it is thought that timing behavior will slow down the speed of adjustment towards the target leverage, but statistical tests show that the speed of adjustment after taking into account timing is no different from the speed of adjustment before taking into account timing, meaning that timing behavior does not affect the speed of adjustment towards the target leverage. This condition is thought to originate from the large number of equities traded at underprice conditions (market prices lower than the intrinsic value of the shares) during the research period.
Keywords: trade off theory, market timing theory, targeting behavior, timing behavior, leverage deviation, speed of adjustment towards target leverage
Sources: http://repository.unair.ac.id/88961/
