Abstract

The present study aims to examine the influence of corporate governance on capital structure decisions within the Indonesian banking sector. The dataset utilized in this research comprises 264 firm-year observations from 24 banks that were publicly traded on the Indonesia Stock Exchange throughout the period spanning from 2011 to 2021. The data are analyzed utilizing descriptive statistics and the Generalized Method of Moments, specifically employing the dynamic panel model. The findings of this study indicate that the level of management ownership and the inclusion of foreign directors on a company's board of directors exert influence on leverage ratios. Specifically, the first variable has a positive effect, while the second variable demonstrates a negative effect. This study contributes to the existing literature on capital structure and corporate governance by presenting novel insights into the impact of both factors on capital structure within the financial industry. The aforementioned findings will aid policymakers in evaluating the adequacy of corporate governance changes in bolstering the management of capital structure, particularly within the context of Indonesia. The results demonstrate that management ownership and the presence of foreign directors on a company's board of directors have an impact on leverage ratios, with a positive effect for the first variable and a negative one for the second. This study adds to the body of knowledge on capital structure and corporate governance by providing fresh information on how these factors affect capital structure in the financial industry. These findings will help policymakers assess whether corporate governance reforms are sufficient to enhance capital structure management, especially in Indonesia.

Keywords

Corporate governance, Capital structure, Dynamic panel model, Indonesian banks, Leverage