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The Role of Business Sophistication, Revenue Diversification, and Labor Relations on Firm Financing Choice

Author

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  • Ariefianto, Moch. Doddy

    (Accounting Department BINUS Graduate Program-Master Accounting Bina Nusantara University Jakarta, 11480 INDONESIA)

  • Trinugroho, Irwan

    (Faculty of Economics and Business Universitas Sebelas Maret Jalan Ir. Sutami 36 A Surakarta, Central Java INDONESIA)

  • Yustika, Ahmad Erani

    (Department of Economics Faculty of Economics and Business Brawijaya University and Institute for Development of Economics and Finance (INDEF) Jl. MT Haryono No. 165, Malang, 65145 INDONESIA)

  • Soedarmono, Wahyoe

    (Faculty of Business Sampoerna University L’Avenue Office, Jl. Raya Pasar Minggu Kav.16A Pancoran, Jakarta 12780 INDONESIA)

Abstract

We model and empirically estimate the relationship of ordinal scaled dependent variable: firm financing choice with business sophistication, revenue diversification and labor relationship using Indonesian data. We use controlling variables derived from Trade off Theory and Pecking Order Theory literature. We then elaborate the baseline model to include additional categoric variables of location and ownership, besides the interaction terms. The dataset is constructed from World Bank Enterprise Survey Year 2015 and Generalized logistic —partial proportional odds regression is employed as an estimator. We find that better business sophistication leads to greater acceptance to financing from outsiders and more diversified firms tend to prefer external financing. Finally, a better labor relationship corresponds to a greater preference for internal financing.

Suggested Citation

  • Ariefianto, Moch. Doddy & Trinugroho, Irwan & Yustika, Ahmad Erani & Soedarmono, Wahyoe, 2020. "The Role of Business Sophistication, Revenue Diversification, and Labor Relations on Firm Financing Choice," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(3), pages 101-115.
    • Handle: RePEc:ukm:jlekon:v:54:y:2020:i:3:p:101-115
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    References listed on IDEAS

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