The determinants of capital structure in coal mining industry on the Indonesia Stock Exchange

Abstract

This study aims to examine the effect of several variables such as profitability, firm size, asset structure, and commodity price (coal) on the capital structure with the debt to equity ratio (DER) as a proxy in the coal mining companies listed on the Indonesian capital market (i.e., the Indonesia Stock Exchange (IDX). The different results of previous studies related to the effect of some independent variables such as the firm size, profitability, asset structure, and dividend policy, such as dividend payout ratio to the DER, yield the research gaps that require further research. Data in this research were taken from the official public listed company’s annual reports on the IDX website. By employing the multiple regression techniques, this study found that only profitability and asset structure significantly affect the capital structure (proxied by DER). The effect of profitability was negative, while the effect of asset structure was positive. Based on these results, the managers may start considering re-balancing the use of external funds if the profitability level increases. Further, they also need to maintain the company’s asset structure and balance its’ fixed assets so that the capital structure is well maintained. In general, the findings supported the pecking order theory.

Keywords

• asset structure
• capital structure
• debt to equity ratio (DER)
• mining companies
• profitability
• the Indonesia Stock Exchange (IDX)