Capital Structure Determinantion Based on Company Life Cycle in Manufacturing Sector in Indonesia

Abstract

The capital structure relates to the financing decisions required by the company. The capital structure relates to the amount of the portion of the leverage or debt of a company. The need for internal and external sources of funds at each stage of the company's life cycle is largely determined by the company's ability to obtain cash flow and the level of risk preference. The life cycle of the company in this study uses three stages, namely Growth, Mature and Decline.This study aims to examine and analyze the determinants of capital structure based on the life cycle of manufacturing companies in Indonesia. Manufacturing companies were chosen because they have a large contribution to the National GDP (Gross Domestic Product) and are the largest share of issuers on the Indonesia Stock Exchange (IDX) This study uses secondary data with an observation period of 2015 to 2019. The population of this study is the listed companies on the Indonesia Stock Exchange (IDX). Determination of the sample using purposive sampling method in order to obtain 85 samples. Samples are grouped at the stage of the growth, mature and decline life cycle companies each year based on the scoring of 4 variable classifications, namely dividend payout (DP), sales growth (SG), firm age (AGE), and capital expenditure (CEV). Capital structure is DER and the independent variable proxies are Size (Total Asset), Growth (Sales Growth), Profit (ROE), NDTS (Non Debt Tax Shield) and Dividend (DPR). The results of this study indicate that size has a positive effect on capital structure in the Growth and Mature cycles, but size has no positive effect on capital structure in the Decline cycle. The findings on the growth (sales) variable show a positive effect on the capital structure in the growth cycle, while growth (sales) has no effect on the capital structure in the Mature cycle, but growth (sales) has a negative effect on the capital structure in the Decline cycle. The results of this study found that profit has a negative effect on capital structure in the Growth, Mature, and Decline cycles. The results of this study indicate that NDTS (Non Debt Tax Shield) and dividends do not have a negative effect on capital structure in the Growth, Mature, and Decline cycles. There are findings that liquidity has no positive effect on the capital structure in the Growth and Decline cycles, but liquidity has a negative effect on the capital structure in the Mature cycle. Overall, it can be concluded that there are differences and similarities in variables that affect the capital structure based on the life cycle stages of manufacturing companies in Indonesia during the period 2015 to 2019.