Samenvatting

This paper examines the effect of firm-specific factors on the leverage decision of the Indonesian listed firms in the food industry, which is one of the largest and most important industries in Indonesia. In this study, four firm-specific determinants of the capital structure were analyzed using a multivariate regression model with a balanced panel sample of 64 Indonesian publicly traded firms operating in the food industry for the period of 2015-2020. The results show that size and tangibility have a significantly positive relationship with leverage. Meanwhile, profitability is significantly negatively related to leverage. However, there is no statistically significant result for growth. Among all the independent variables, profitability places the largest part that affects the formation of capital structure. The model also tested the assumptions of trade-off, pecking order, and agency theory regarding capital structure. Overall, the trade-off theory explains most of the variation in the funding decision of Indonesian firms in the food industry during 2015-2020. Besides, this paper investigates the distinction of the capital structure determinants for firms operating in Indonesia and in the US. Some recommendations are also provided in this study for the practitioners by pointing out some of the major capital structure issues.