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The Influence of Growth, Asset Tangibility, Cost Of Debt, Profitability and Business Risk on Debt Capital: Evidence from the Textile and Garment Industry in the Indonesian Stock Market

Author

Listed:
  • Erika Jimena Arilyn

    (Trisakti School of Management, Indonesia Author-2-Name: Beny Author-2-Workplace-Name: Trisakti School of Management, Indonesia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)

Abstract

Objective - The aims to identify the significant factors that influence a company's decision to use debt capital. Methodology/Technique - This study uses 5 independent variables namely; firm growth (growth rate in total gross assets), asset tangibility (ratio of net fixed assets to total assets), cost of debt (interest before tax / long term debt), profitability (Earnings Before Interest and Taxes (EBIT) / Total Asset), and business risk (standard deviation of EBIT to total assets). The dependent variable in this study, debt capital, is measured by the ratio of long-term debt to total assets. A purposive sampling method is used to select 11 out of 18 textile and garment companies listed on the Indonesian Stock Exchange between 2014 and 2018 that report their annual financial positions. A quantitative method, panel data analysis technique and SPSS tools were also used in this study. Finding - The results show that debt capital is influenced by profitability, while the remaining factors do not influence debt capital. Novelty - This study adds to the existing literature on internal factors, market condition as an external factors, and debt capital in developed countries. The benefit of this study is to explore the potential capabilities of the industry in using its profit to minimize the use of debt as a source of capital to decrease business risk. Type of Paper - Empirical.

Suggested Citation

  • Erika Jimena Arilyn, 2019. "The Influence of Growth, Asset Tangibility, Cost Of Debt, Profitability and Business Risk on Debt Capital: Evidence from the Textile and Garment Industry in the Indonesian Stock Market," GATR Journals afr183, Global Academy of Training and Research (GATR) Enterprise.
    • Handle: RePEc:gtr:gatrjs:afr183
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    References listed on IDEAS

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    1. Titman, Sheridan & Wessels, Roberto, 1988. " The Determinants of Capital Structure Choice," Journal of Finance, American Finance Association, vol. 43(1), pages 1-19, March.
    2. Hussein A. Abdou & Andzelika Kuzmic & John Pointon & Roger J. Lister, 2012. "Determinants Of Capital Structure In The Uk Retail Industry: A Comparison Of Multiple Regression And Generalized Regression Neural Network," Intelligent Systems in Accounting, Finance and Management, John Wiley & Sons, Ltd., vol. 19(3), pages 151-169, July.
    3. Joshua D. Rauh & Amir Sufi, 2010. "Capital Structure and Debt Structure," The Review of Financial Studies, Society for Financial Studies, vol. 23(12), pages 4242-4280, December.
    4. Fan, Joseph P. H. & Titman, Sheridan & Twite, Garry, 2012. "An International Comparison of Capital Structure and Debt Maturity Choices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 47(1), pages 23-56, February.
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    More about this item

    Keywords

    Profitability; Growth; Cost of Debt; Business Risk; Tangibility; Capital Structure.;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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