| Summary: | This study examined the role of two theories of capital structure that is the tradeoff
theory (TOT) and the pecking order theory (POT), to see whether the two
theories are mutually exclusive or not on the determination of capital structure.
The model used in this study consists of three models, namely the target partial
adjustment model, the pecking order model, and the nested model that is a
combination of the two previous models.
Tests conducted using data on the financial statements of public companies in
Indonesia, in the year 2002 to 2011 observations with eliminating some companies
that do not meet the specified criteria.
Model testing performed using a panel data are estimated using PLS estimator and
FEM and GLS approaches in order to study more reliable.
The results showed that both theories play a role in determining the capital
structure as well as when tested individually, or together. Thus it can be said that
the trade-off theory and the pecking order theory are not mutually exclusive.
|
|---|