Determining Factors of Capital Structure and its Effect on the Value of Public Companies in Indonesia

Abstract

The purpose of this study is to analyze the determinants of capital structure and how its affect firm value. The sample selected from public companies listed on the IDX which  four (4) industries were selected by using stratified and purposive random sampling that have been selected 74 companies with 222 observations from 2017 to 2019. Estimation technique of panel data in this study by using  the FEM approach. The results of hypothesis testing reveal that in the first model, three (3) variables that have a significant positive effect on the company's capital structure, namely AUR, LSIZE and ROA. Furthermore, in the second model, the company's capital structure has a negative effect on firm value. This study also reveals that companies tend to use debt as the first alternative when internal sources of funds are insufficient.  Investors are advised to be careful in investing their funds in companies that have a very high debt utilization ratio, because in addition to burdening the company's cash flow, the company will also have the potential to lead to bankruptcy if the use of the debt is not managed properly.