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Institutional Change and Corporate Financing in Indonesia: Estimating the Effects of Social and Political Factors on Capital Structure

  • Hidenobu Okuda
  • Yasushi Take

This study investigates the factors determining the capital structure of Indonesian listed companies before and after the implementation of economic reform policies subsequent to the 1997-1998 Asian financial crisis. The estimation analysis of the panel data for the period 1994-1997 and 2000-2006 reveals several factors that determined substantive change in the financing activities of these listed companies. The capital structure of Indonesian companies had not been explained sufficiently by the standardized theory of corporate financing, which had not considered the effects of the specific social and political elements as well as business conglomerates, before the Asian financial crisis. However, the capital structure of Indonesian companies became fitted more to the corporate financing theory, after the influence of social and political factors of corporate attributes weakened substantially following the post-crisis reform policies. This significant change is considered to result from institutional change caused by the financial and corporate reforms in the post-financial crisis era.

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Paper provided by Institute of Economic Research, Hitotsubashi University in its series Global COE Hi-Stat Discussion Paper Series with number gd09-108.

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Date of creation: Dec 2009
Date of revision:
Handle: RePEc:hst:ghsdps:gd09-108
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  1. Booth, L. & Asli Demirgu-Kunt, V.A. & Maksimovic, V., 1999. "Capital Structure in Developing Countries," Rotman School of Management - Finance 00-001, Rotman School of Management, University of Toronto.
  2. Wiwattanakantang, Yupana, 1999. "An empirical study on the determinants of the capital structure of Thai firms," Pacific-Basin Finance Journal, Elsevier, vol. 7(3-4), pages 371-403, August.
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