Determinants of Capital Structure and Impact Capital Structure on Firm Value

Abstract

Some theories explain the differences of capital structure for any company. As a result, it is important to review capital structure to increase firm value, especially manufacturing companies in Indonesian Stock Exchange (IDX), which is mostly labor intensive. The purpose of this study was to analyze the influence of CEO ability, profitability, NDTS, cash flow and CEO ownership on capital structure (LTDE and LTDA), and the impact of capital structure (LTDE and LTDA) on firm value. The study was conducted at manufacturing companies in IDX. Observation period are 2006-2010. CEO ability and CEO ownership determines capital structure (LTDE), while profitability and cash flow NDTS does not affect. Furthermore, CEO ability, profitability, NDTS and CEO ownership determines capital structure (LTDA), but cash flow does not affect. Capital structure (LTDE and LTDA) determines firm value. Enterprise value is more determined by companies that use the overall assets in operational activities compared to companies that only rely their own capital. This research uses pecking order, trade-off and asymmetric information theory.