DETERMINANTS OF CAPITAL STRUCTURE’S ADJUSTMENT SPEED: EMPIRICAL ANALYSIS OF REAL ESTATE, PROPERTY, AND CONSTRUCTION FIRMS

Subiakto Soekarno, Eggy Muhammad Prayoga, Indra Yudha Mambea

Abstract


This study explored the determinants of capital structure, optimal capital structure, and adjustment speed in real-estate, property, and construction firms in Indonesia. It conducted a quantitative analysis of the annual report of 25 listed firms by employing a generalized method of moment approach with panel data to estimate the result. Results showed that the determinants of capital structure, such as profitability, tangibility, size, and liquidity, have a negative impact on leverage. By contrast, a non-debt tax shield has a positive impact. Based on the regression result, firms have an optimal capital structure target with a yearly adjustment speed of 80%. Furthermore, calculation of optimal target structure shows that firms require approximately three years to meet the discrepancy between their current capital structure and the targeted capital structure.


Keywords


adjustment speed, capital structure, generalized method of moment, panel data

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DOI: http://dx.doi.org/10.24198/jbm.v22i1.545

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