The Impact of Financial Flexibility and Business Risk on Capital Structure with Firm Size as a Moderating Variable

Abstract

This study examines the impact of financial flexibility, business risk and moderating effect of firm size on the capital structure of listed manufacturing companies in Indonesia Stock Exchange for 2017 to 2019. The proxies for the financial flexibility are earning to total capital ratio, cash holding, operating cash flow to value ratio, and dividend pay-out ratio. Analysis used panel data regression models and moderated regression analysis (MRA). The results of the study indicate that financial flexibility which is measured by earning to total capital ratio has a negative and significant effect on capital structure. Meanwhile, financial flexibility which is measured by cash holding, operating cashflow to value ratio, and dividend pay-out ratio, have no significant effect on capital structure. Business risk has no significant effect on capital structure as well. Firm size as a moderating variable does not moderate the effect of financial flexibility and business risk on capital structure.