| Summary: | The research investigate whether non-financial firms listed on the
Indonesian Stock Exchange made capital structure adjustment towards optimal
capital structure and the determinants of adjustment speed in context of trade-off
theory for 2005-2009 period. Existence of tax benefit that generates by debt
interest payment causing firms arrange their capital structure in order to maximize
debt utilizing. But then, debt utilizing would be make default problem and
bankruptcy if it excess firm�s capacity that determine by some firm�s
characteristic such as tangibility, profitability, size and growth opportunities.
The study argues that non-financial firms in Indonesia make capital
structure adjustment towards their optimal capital structure. Besides that, speed of
adjustments should be depend on some factor such as distance between actual
capital structure with optimal capital structure, financial surplus/deficit and
current liabilities. Because of optimal capital structure unobservable, so they will
be estimate by using some variable which are influencing in capital structure
arrangement.
The results indicate that non-financial firms in Indonesia follows dynamic
trade-off theory with make capital structure adjustment towards optimal capital
structure but still underleveraged. The last, distance between actual capital
structure and optimal capital structure is influenced speed of adjustments, while
financial surplus/deficit and current liabilities are not influenced speed of
adjustments.
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