Determinants Capital Structure of Small and Medium Enterprises in Indonesia

Abstract

This research aims to analyze the determinants of capital structure. The independent variables in this study are corporate taxes, company size, tangible assets, corporate risk, profitability, non-debt tax protection, and liquidity. While the dependent variable is short-term debt, long-term debt, and total debt. The sample of this study uses 61 Small and Medium Enterprises companies listed on the Pefindo Index for the period of 2019-2021. The sampling technique uses purposive sampling and the analysis method uses panel data regression. The results explained that corporate taxes, tangible assets, and non-debt tax shields do not affect capital structure. Company size does not affect short-term debt and total debt. However, it has a significant negative effect on long-term debt. Company risk and liquidity significantly negatively affect short-term debt and total debt. However, it does not affect long-term debt. Profitability has a significant positive effect on short-term debt and a significant negative effect on long-term debt. The implication of the research that has been done is to provide direction for financial managers regarding the optimal use of capital structure to achieve the company's goal of increasing the welfare of shareholders. As for investors, investors should choose companies that have high company size, low risk, and high liquidity.

Determinants of Capital Structure Decision of Micro, Small and Medium Scale Entreprises (MSMES) in Selected South Western States, Nigeria

“…These results are consistent with the trade-off theory which explains that large firms have more diversity and less chance of bankruptcy than smaller ones. On the other hand, in the study of SMEs in Indonesia within 2019-2022, Hailla and Leon (2022) have shown the existence of a negative and insignificant effect in relation to firm size and long term debt. Long and Milan (2023) also discovered a significant negative impact of firm size on capital structure (debt ratio).…”

“…These differences in capital structure are also influenced by additional factors, and this is of particular relevance to MSMEs which have led to studies from a number of researchers on factors that influence or determine capital structure across countries. Although, diverse studies exist in relation to what affect capital structure choices or access to finance by MSMEs in developed and developing countries (as ELbekpashy & ELgiziry, 2018 in Egypt; Forte et al, 2013 in Brazil;Hailla & Leon, 2022;Long & Milan, 2023 in Visegrad group; Lussuamo & Serrasqueiro, 2019 in Angola;Muiru & Kamau, 2014 in Kenya;Oppong-Boakye et al, 2013 in Ghana;Rossi, 2014 in Italy;Rao et al, 2019in India, Arzubiaga et al, 2023 in Spain; Uyar & Guzelyurt, 2015 in Turkey); this area of research is still underexplored in Nigeria as a large number of studies lay emphasis on big and quoted firms and listed firms and the results obtained from these studies cannot be generalized for MSMEs due to their peculiarities.…”

“…Apart from firm characteristics (as firm age, profitability, asset structure, growth, size, liquidity, risk, taxation) largely examined by previous studies (Hashemi, 2013;He & Kira, 2012;Mac an Bhaird & Lucey, 2010;Muiru & Kamau, 2014;Saarani & Shahadan, 2013), owner-manager characteristics are factors specific to MSMEs and can affect their decision. In terms of the ability to raise finance, personal characteristics of owners and managers have a huge impact.…”

“…statement of financial position. They are composed of both internal and external funding sources (Hailla & Leon, 2022;Modugu, 2013). The use of retained earnings, personal and family savings, which represent internal equity, is one of these sources.…”