Determinants of Capital Structure and the Impact to Firm Value

Wibisono, Handoyo (2008) Determinants of Capital Structure and the Impact to Firm Value. Phd thesis, UAJY.

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Abstract

This study explained that theories which determine capital structure are: static trade-off theory, signaling effect theory, and market timing theory. Variables influencing capital structure of current year are: capital structure of previous year, profitability of previous year, and firm growth of previous year. Bankruptcy, risk of previous year, collateral of previous year, liquidity of previous year, firm size of previous year, and firm value of previous year, its influence do not significant. While theory which determines firm value is market timing theory. Variables influencing firm value of current year are: firm value of previous year, and profitability of previous year. Capital structure of previous year and firm growth of previous year, its influence do not significant. Thereby, determination of capital structure represent the combination from implementation of market timing theory (negative influence of profitability to capital structure and positive influence of capital structure of previous year to capital structure of current year), and signaling effect theory (positive influence of firm growth to capital structure). While firm value represent the implementation from market timing theory, because proven is not influenced by capital structure directly, but is influenced by profitability and firm value of previous year positively. Profitability measured by ROA expose that firm performance to yield the profit from business activity, playing important role in determination of capital structure and make-up of firm value.

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