How Companies At Mature Stages Choose Their Capital Structure? Evidence From Indonesian Data Panel

Capital Structure Decisions under consideration of the company's life cycle are important in financial studies. We examine two of the most prominent capital structure theories, namely the Trade off Theory and the Pecking Order Theory by incorporating the Firm's Life Cycle factors to see how companies at mature stages choose their type of capital structure. We use mature stage dummy variables classified from the concept of the Firm's Life Cycle, and include them in three models, namely the Partial Target Adjustment Model, Deficit Financing Model, and Nested Model, to capture the dominance of Trade Off Theory and Pecking Order Theory in explaining capital structure decisions. We collected sample of non financial company from the Indonesia Stock Exchange (www.idx.co.id) purposively with a range from 2004 to 2013, and pool it into balanced panel data. The test results show that companies in mature stages have a tendency to consider minimum Cost of Capital (CoC ) in their capital structure decisions, while still maintaining small scale capital cost optimization. The test results show that the consideration based on pecking order theory is more dominant than the trade off theory in the capital structure decisions of companies in the mature stage, although both theories play a complementary role