Determinants of the Capital Structure of Non-financial Firms Moderated by Financial Market Development

Abstract

Objective: Previous studies have reported inconsistent findings regarding the determinants of capital structure, with limited evidence on the moderating role of financial market development in emerging markets. Therefore, this study aims to examine the effects of goodwill assets, digital transformation, corporate social responsibility (CSR), liquidity, and managerial ownership on the capital structure of non-financial companies in Indonesia, with financial market development as a moderating variable. Research Design: This study adopts a quantitative research design using a panel data regression analysis approach. Research Setting and Period: This study uses secondary data from non-financial companies listed on the Indonesia Stock Exchange (IDX) during the period 2020–2024. Methodology: The sampling technique used was purposive sampling, resulting in a sample of 86 non-financial companies with a total of 430 company-year observations. Based on the results of the model selection test, the Fixed Effects Model (FEM) was identified as the best-fitting model. The independent variables in this study are goodwill, digital transformation, corporate social responsibility (CSR), liquidity, and managerial ownership. Capital structure serves as the dependent variable. The moderating variable is financial market development. Results: The findings indicate that corporate social responsibility and managerial ownership have a significant negative effect on capital structure, whilst digital transformation and goodwill assets do not have a significant effect on capital structure. Meanwhile, financial market development was found to moderate the effects of goodwill assets, digital transformation, and liquidity on capital structure. Financial market development does not moderate the effects of corporate social responsibility and managerial ownership on capital structure. Conclusion: This study concludes that corporate social responsibility, liquidity, and managerial ownership are factors that influence a company’s capital structure, whilst digital transformation and goodwill do not have a direct impact. Furthermore, financial market development moderates the effects of goodwill, digital transformation, and liquidity on capital structure but does not moderate the effects of corporate social responsibility and managerial ownership. These findings indicate that financial market conditions are an important factor in determining the extent to which firm characteristics influence capital structure decisions. This study contributes to the capital structure literature by providing new empirical evidence on the moderating role of financial market development in Indonesian non-financial companies.