Capital structure, corporate performance, and life cycle: Evidence from Indonesia
Open Access
- 3 July 2017
- journal article
- Published by Virtus Interpress in Corporate Ownership and Control
- Vol. 14 (4), 449-461
- https://doi.org/10.22495/cocv14i4c2art10
Abstract
This study aims to investigate firstly, the influences of company life cycle (i.e., pioneer, growth, mature, and decline) and set of control variables (i.e, tax level, interest rate, institutional ownership, and managerial ownership) on capital structure; secondly, the influence of capital structure on company performance; and thirdly, the moderating role of each stage of the company life cycle on the relationship between capital structure and company performance. Implementing quantitative approach by using OLS Regression Analysis and Moderated Regression Analysis (MRA) on a set of the sample that consists of 157 Indonesian non-financial listed firms for 2010-2015 periods (942 firm years), findings show that company life cycle has a significant influence on capital structure. While for control variables, tax level and institutional ownership have a positive influence on the capital structure, wherein interest rate and managerial ownership have a negative effect on capital structure. Moreover, capital structure ratio influences positively on company performance. Finding also documents that pioneer and growth stages have a moderating role in strengthening the influence of capital structure on company performance, while mature and decline stages have a moderating role in weakening the influence of capital structure on company performance. This study provides important implications for corporations and business practitioners with regard to the best choice in the composition of capital structure which is able to improve company performance. On the best of our knowledge, it is the first study testing the moderating role of company life cycle on the relationship between capital structure and company performance.Keywords
This publication has 30 references indexed in Scilit:
- The relationship of capital structure decisions with firm performance: A study of the engineering sector of PakistanInternational Journal of Accounting and Financial Reporting, 2012
- The impact of capital‐structure choice on firm performance: empirical evidence from EgyptThe Journal of Risk Finance, 2009
- The effect of capital structure on profitability: an empirical analysis of listed firms in GhanaThe Journal of Risk Finance, 2005
- On the relation between ownership structure and capital structureAccounting & Finance, 2002
- Managerial discretion and optimal financing policiesJournal of Financial Economics, 1990
- Corporate Finance and Corporate GovernanceThe Journal of Finance, 1988
- Corporate financing and investment decisions when firms have information that investors do not haveJournal of Financial Economics, 1984
- Determinants of corporate borrowingJournal of Financial Economics, 1977
- BANKRUPTCY COSTS: SOME EVIDENCEThe Journal of Finance, 1977
- The Determination of Financial Structure: The Incentive-Signalling ApproachThe Bell Journal of Economics, 1977