Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indonesian Stock Exchange
Numerous empirical studies in the finance field have tested many theories for firms’ capital structure. The pecking order theory and the trade-off theory of capital structure is among the most influential theories of firms’ capital structure. The trade-off theory predicts optimal capital structure,...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Bina Nusantara University
2012-03-01
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| Series: | Journal the Winners |
| Subjects: | |
| Online Access: | https://journal.binus.ac.id/index.php/winners/article/view/666 |
| _version_ | 1818579096065540096 |
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| author | Priska Ralna Eunike Culata Tri Gunarsih |
| author_facet | Priska Ralna Eunike Culata Tri Gunarsih |
| author_sort | Priska Ralna Eunike Culata |
| collection | DOAJ |
| description | Numerous empirical studies in the finance field have tested many theories for firms’ capital structure. The pecking order theory and the trade-off theory of capital structure is among the most influential theories of firms’ capital structure. The trade-off theory predicts optimal capital structure, while the pecking order theory does not predict an optimal capital structure. According to pecking order theory, the order of financial sources used is the source of internal funds from profits, short-term securities, debt, preferred stock and common stock last. The main objective of this study is to econometrically test whether the listed companies in Indonesian Stock Exchange follow the pecking order theory or the trade-off theory. Samples in this study are public companies listed during 2009-2010. The research questions are tested by running regression models. The empirical result of this study shows that the pecking order theory is not supported, while the trade-off theory is supported. This suggests that the capital structure of listed companies in Indonesian Stock Exchange is financed based on optimal capital structure, not by the order financial resources. |
| first_indexed | 2024-12-16T06:56:16Z |
| format | Article |
| id | doaj.art-8b493c2b49b540b78e69b77215a950c1 |
| institution | Directory Open Access Journal |
| issn | 1412-1212 2541-2388 |
| language | English |
| last_indexed | 2024-12-16T06:56:16Z |
| publishDate | 2012-03-01 |
| publisher | Bina Nusantara University |
| record_format | Article |
| series | Journal the Winners |
| spelling | doaj.art-8b493c2b49b540b78e69b77215a950c12022-12-21T22:40:17ZengBina Nusantara UniversityJournal the Winners1412-12122541-23882012-03-01131404910.21512/tw.v13i1.666516Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indonesian Stock ExchangePriska Ralna Eunike Culata0Tri Gunarsih1Universitas Teknologi YogyakartaUniversitas Teknologi Yogyakarta Jl. Ringroad Utara, Jombor, Sleman, YogyakartaNumerous empirical studies in the finance field have tested many theories for firms’ capital structure. The pecking order theory and the trade-off theory of capital structure is among the most influential theories of firms’ capital structure. The trade-off theory predicts optimal capital structure, while the pecking order theory does not predict an optimal capital structure. According to pecking order theory, the order of financial sources used is the source of internal funds from profits, short-term securities, debt, preferred stock and common stock last. The main objective of this study is to econometrically test whether the listed companies in Indonesian Stock Exchange follow the pecking order theory or the trade-off theory. Samples in this study are public companies listed during 2009-2010. The research questions are tested by running regression models. The empirical result of this study shows that the pecking order theory is not supported, while the trade-off theory is supported. This suggests that the capital structure of listed companies in Indonesian Stock Exchange is financed based on optimal capital structure, not by the order financial resources.https://journal.binus.ac.id/index.php/winners/article/view/666capital structurepecking order theorytrade-off theory |
| spellingShingle | Priska Ralna Eunike Culata Tri Gunarsih Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indonesian Stock Exchange Journal the Winners capital structure pecking order theory trade-off theory |
| title | Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indonesian Stock Exchange |
| title_full | Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indonesian Stock Exchange |
| title_fullStr | Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indonesian Stock Exchange |
| title_full_unstemmed | Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indonesian Stock Exchange |
| title_short | Pecking Order Theory and Trade-Off Theory of Capital Structure: Evidence from Indonesian Stock Exchange |
| title_sort | pecking order theory and trade off theory of capital structure evidence from indonesian stock exchange |
| topic | capital structure pecking order theory trade-off theory |
| url | https://journal.binus.ac.id/index.php/winners/article/view/666 |
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