An Empirical Analysis of Firm-specific Determinants of Capital Structure Before and During COVID-19 Pandemic: Evidence from Listed Hotels, Restaurants, and Tourism Entities on the Indonesia Stock Exchange

Capital structure is vital to every company because it has a huge impact on the company’s financial decisions. The ultimate goal of the company is to effectively mix the debt-to-equity ratio (DER) to maximize the shareholder value. When the Covid-19 pandemic was officially announced in early March 2020, widespread negative effects started to affect almost all industries in Indonesia. The hotel, restaurant, and tourism industry is considered to be one of the most severely affected industry categories. It is important to pay attention to the role of this industry in Indonesia’s overall economy as it contributes to Indonesia’s gross domestic product at 6.1% in 2019. The objective of this study was to address the effects on the formation of capital structure of firm-specific characteristics among a sample of 26 active hotels, restaurants, and tourism companies listed on the Indonesia Stock Exchange. The authors used the data from the second and third quarters of 2019 to represent the period before the pandemic. Meanwhile, the period during the pandemic is represented by the data from the second and third quarters of 2020. Using the random-effects model to test the hypotheses, the authors found that asset tangibility, tax shield, and earnings volatility had significant positive correlations with book leverage. Furthermore, tax shield and earnings volatility had significantly positive relationships with DER. The authors also detected that size and earnings volatility had significant negative correlations with net equity. However, the authors found no significant relationship between capital structure and the pandemic dummy. It was inferred from the results that the pandemic had no effect on capital structure within the research period.