Determinants of Bank Capital Structure in Indonesia

Abstract

Decision regarding to the capital structure is the main point for the banking industry since, it relates to the interest of many parties such as shareholders, creditors and company management. It is important for bank management to determine capital structure policies to support bank operational activities, such as lending. A good capital structure policy will bring banking institutions into a stable condition. Every manager need to know what is the factors need to be considered in making a capital structure decision. The purpose of this study is to analyze the factors that influence the capital structure of commercial banks in Indonesia. The indicators that become the factors in influencing the capital structure are profitability, liquidity, business risk, dividends, managerial ownership, institutional selection and the age of the bank. This study also uses the year of 2016 – 2020 research using a multiple regression analysis tool. The results of the study explained that the variables of profitability, liquidity and bank age had no effect on the capital structure of commercial banks in Indonesia. Meanwhile, business risk variables, dividend policy, taxes and institutional ownership had a significant effect on capital structure. Therefore, banking institutions should be more careful about the company's internal conditions in determining alternative funding sources. This can be seen based on the result of the research which showed that the internal factors studied in this study are still not fully the main factors in influencing the capital structure decisions. This study uses the 2016 – 2020 research year using a multiple regression analysis tool. The results of the study explain that the variables of profitability, liquidity and bank age have no effect on the capital structure of commercial banks in Indonesia. Meanwhile, business risk variables, dividend policy, taxes and institutional ownership have a significant effect on capital structure. Banking institutions are more careful about the company's internal conditions in determining alternative funding sources. This can be seen based on research results which show that the internal factors studied in this study are still not fully the main factors influencing capital structure decisions.