The Pecking Order Theory: Evidence from Manufacturing Firms in Indonesia
Utami, Siti Rahn-ii
lnanga, Eno L.
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This paper examines the pec/dng order theory and the extent to which evidence from manufacturingfirms in Indonesia supports it. Based on this, the paper goes on to analyse the determinants of the capital struirture affirms in this sector of the Indonesian economy, T 0 test the pecking order hypothesis, this studv uses newly retained earnings, net debt issues, and net equity issues as dependent variables, and financial deficit as independent variable. The paper analyses the determinants of capital structure by using short-term and long-term liabilities as dependent variables, and profitability, growth,_firm sizafinancial deficit, and asset tangibility as independent variables. The present study chooses manufacturing sector companies listed in the Indonesian Stock Exchange for data availability, and ordinary least squares regression to analyze the data. The analysis shows that financial deﬁcit has signiﬁcant negative effect on newly retained earnings, but significantly positive inﬂuence an both net equity and net debt issues. These ﬁndings tend not ta support the pecking order theory that retained earnings are the first preferred funding source and equity the last resort. The conclusion there/ore is that evidence from ﬁrms in the Indonesian manufacturing sector does not support the pecking order theory.