Track: Business Management

Abstract

This study contributes to the existing literature on the capital structure by providing evidence regarding the existence of a target capital structure, the estimated speed of adjustment, and the factors influencing it. The concept of speed adjustment begins with dynamic trade-off theory with the aim that the company achieves optimal leverage targets. The purpose of this paper is to examine the determinants of capital structure and speed of adjustment in Indonesia's Health Sector companies. For this purpose, we use the Generalized Method of Moments system estimation technique. The test results show that firm size and liquidity have positive and negative significant effect on optimal capital structure. The results also indicate that the health sector companies adjust their capital structure towards the optimal capital structure with an average adjustment period of 1.17 years. This study also show that distance and financial deficit/surplus did not have a significant effect on the speed of adjustment of the company's capital structure.

Keywords

Determinants of Capital Structure, Optimal Capital Structure, Generalized Method of Moments, Speed of Adjustment.