The Influence of Growth, Asset Tangibility, Cost of Debt, Profitability and Business Risk on Debt Capital
Acc. Fin. Review 4 (4) 120 – 127 (2019)
8 Pages Posted: 2 Mar 2020
Date Written: December 31, 2019
Objective - The aims to identify the significant factors that influence a company's decision to use debt capital.
Methodology/Technique - This study uses 5 independent variables namely; firm growth (growth rate in total gross assets), asset tangibility (ratio of net fixed assets to total assets), cost of debt (interest before tax / long term debt), profitability (Earnings Before Interest and Taxes (EBIT) / Total Asset), and business risk (standard deviation of EBIT to total assets). The dependent variable in this study, debt capital, is measured by the ratio of long-term debt to total assets. A purposive sampling method is used to select 11 out of 18 textile and garment companies listed on the Indonesian Stock Exchange between 2014 and 2018 that report their annual financial positions. A quantitative method, panel data analysis technique and SPSS tools were also used in this study.
Finding - The results show that debt capital is influenced by profitability, while the remaining factors do not influence debt capital.
Novelty - This study adds to the existing literature on internal factors, market condition as an external factors, and debt capital in developed countries. The benefit of this study is to explore the potential capabilities of the industry in using its profit to minimize the use of debt as a source of capital to decrease business risk.
Type of Paper - Empirical.
Keywords: Profitability; Growth; Cost of Debt; Business Risk; Tangibility; Capital Structure
JEL Classification: G23, G32
Suggested Citation: Suggested Citation