Microeconomics and raw material price on capital structure adjustment through dynamic target in Indonesian textile industries

Dasman, S.; Febrian, E.; Nidar, S.; Herwany, A.

Growing Science » Accounting » Microeconomics and raw material price on capital structure adjustment through dynamic target in Indonesian textile industries

Journals

AC Volumes

Volume 1 (9)
- Issue 1 (5)
- Issue 2 (4)

Volume 2 (20)
- Issue 1 (5)
- Issue 2 (5)
- Issue 3 (5)
- Issue 4 (5)

Volume 3 (22)
- Issue 1 (7)
- Issue 2 (6)
- Issue 3 (4)
- Issue 4 (5)

Volume 4 (17)
- Issue 1 (5)
- Issue 2 (4)
- Issue 3 (4)
- Issue 4 (4)

Volume 5 (17)
- Issue 1 (4)
- Issue 2 (4)
- Issue 3 (4)
- Issue 4 (5)

Volume 6 (154)
- Issue 1 (5)
- Issue 2 (16)
- Issue 3 (18)
- Issue 4 (25)
- Issue 5 (30)
- Issue 6 (30)
- Issue 7 (30)

Volume 7 (205)
- Issue 1 (29)
- Issue 2 (27)
- Issue 3 (25)
- Issue 4 (30)
- Issue 5 (26)
- Issue 6 (32)
- Issue 7 (36)

Volume 8 (46)
- Issue 1 (10)
- Issue 2 (15)
- Issue 3 (14)
- Issue 4 (7)

Volume 9 (21)
- Issue 1 (5)
- Issue 2 (6)
- Issue 3 (5)
- Issue 4 (5)

Volume 10 (20)
- Issue 1 (5)
- Issue 2 (5)
- Issue 3 (5)
- Issue 4 (5)

Countries

Accounting

ISSN 2369-7407 (Online) - ISSN 2369-7393 (Print) Quarterly Publication Volume 7 Issue 1 pp. 231-238 , 2021

Microeconomics and raw material price on capital structure adjustment through dynamic target in Indonesian textile industries Pages 231-238 Download PDF

Authors: Sunita Dasman, Erie Febrian, Sulaeman Nidar, Aldrin Herwany

DOI: 10.5267/j.ac.2020.9.013

Keywords: Adjustment speed, Company-specific, Dynamic capital structure, Macroeconomics, Raw material price

Abstract: This study aims to examine the effects of company-specific macroeconomic fluctuation in raw materials prices on the speed of adjustment through dynamic targeting capital structure on textile companies listed on the Indonesia Stock Exchange during 2012 and the second quarter of 2020. Using panel data regression of the fixed-effect method, we discovered that the speed of adjustment varies in each industry and period. Textile companies listed on the Indonesia Stock Exchange adjust their capital structure through a dynamic target of 53.3% per year. It takes 1 year and 10 months to close the target capital structure. The factors that determine the target capital structure include company size, tangibility, liquidity and growth opportunity, asset utilization, as well as retained earnings. On the other side, factors that contribute to the speed of adjustment include company size, growth opportunity, earnings volatility, asset utilization, retained earnings, distance to the target, and economic growth. Other factors that also affect the speed of adjustment include fluctuations in the prices of cotton and crude oil. The result of this study is expected to provide an optimal capital structure formulation to the textile industries in Indonesia to finance companies’ operational activities and growth opportunities effectively. This study also provides an overview of how textile companies make capital structure adjustment, as there are changes in company-specific factors, macroeconomic conditions, and fluctuation in raw material prices.

How to cite this paper

 Dasman, S., Febrian, E., Nidar, S & Herwany, A. (2021). Microeconomics and raw material price on capital structure adjustment through dynamic target in Indonesian textile industries.Accounting, 7(1), 231-238.

Refrences

Amjed, S., & Shah, S. A. (2016). The impact of volatile economic conditions on corporate capital structure adjustment towards dynamic target in Pakistan. Pakistan Journal of Commerce and Social Sciences (PJCSS), 10(2), 296-315.
Banerjee, S., Heshmati, A., & Wihlborg, C. (2000). The Dynamics of Capital Structure. SSE/EF/ Working Paper Series in Economics and Finance No. 333, Stockholm: Stockholm School of Economics.
De Haas, R., & Peeters, M. (2006). The dynamic adjustment towards target capital structures of firms in transition economies. Economics of Transition, 14(1), 133-169.
Drobetz, W., & Wanzenried, G. (2006). What determines the speed of adjustment to the target capital structure?. Applied Financial Economics, 16(13), 941-958.
Elsas, R., & Florysiak, D. (2015). Dynamic capital structure adjustment and the impact of fractional dependent variables. Journal of Financial and Quantitative Analysis, 50(5), 1105-1133.
Etudaiye-Muhtar, O. F., & Ahmad, R. (2015). Empirical evidence of target leverage, adjustment costs and adjustment speed of non-financial firms in selected African countries. International Journal of Economics and Financial Issues, 5(2), 482-488.
Flannery, M. J., & Rangan, K. P. (2006). Partial adjustment toward target capital structures. Journal of Financial Economics, 79(3), 469-506.
Frank, M. Z., & Goyal, V. K. (2003). Testing the pecking order theory of capital structure. Journal of Financial Economics, 67(2), 217-248.
Hovakimian, A., Opler, T., & Titman, S. (2001). The debt-equity choice. Journal of Financial and Quantitative analysis, 36(1), 1-24.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Jubaedah, J., Yulivan, I., & Hadi, A. R. A. (2016). The Influence of Financial Performance, Capital Structure and Macroeconomic Factors on Firm’s Value–Evidence from Textile Companies at Indonesia Stock Exchange. Applied Finance and Accounting, 2(2), 18-29.
Kythreotis, A., Nouri, B. A., & Soltani, M. (2018). Determinants of capital structure and speed of adjustment: Evidence from Iran and Australia. International Journal of Business Administration, 9(1), 88-113.
Mahakud, J., & Mukherjee, S. (2011, February). Determinants of adjustment speed to target capital structure: Evidence from Indian manufacturing firms. International Conference on Economics and Finance Research, 4, 67-71.
Memon, P. A., Rus, R.B.M., & Ghazali, Z.B. (2015). Dynamism of capital structure: Evidence from Pakistan. Journal of International Business and Economics, 3(1), 52-63
Minton, B., & Schrand, C. (1999). The impact of cash flow volatility on discretionary investment and the cost of debt and equity financing. Journal of Financial Economics, 54(3), 423-460.
Nor, F. M., Haron, R., Ibrahim, K., Ibrahim, I., & Alias, N. (2011). Determinants of target capital structure: Evidence on south east Asia countries. Journal of Business and Policy Research, 6(3), 39-61.
Wolmarans, H., Moyo, V., & Brummer, L. (2013). Dynamic capital structure determinants: Some evidence from South African firms. Journal of Economic and Financial Sciences, 6(3), 661-682.