AN ANALYSIS OF CORPORATE FINANCIAL POLICY AND ITS INFLUENCE ON THE CORPORATE VALUE

Widjanarko, Hendro (2008) AN ANALYSIS OF CORPORATE FINANCIAL POLICY AND ITS INFLUENCE ON THE CORPORATE VALUE. BULETIN EKONOMI, 6 (2). ISSN 1410-2293

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Abstract

This research analyzes the corporate financial policy and its influence on the value of the firm. The corporate policy taking financial decision is an important part for the corporation because it concerning how to get the fund for finance investment and how to determine the optimal composition of fund source for the corporation, and is it best for the corporation using internal or external fund source, and is it preferable for the corporation utilizing internal or foreign capital in achieving optimal composition capital. Population in this research is all of go public manufacturing corporations registered in Indonesian Stock Exchange (BEI) of the year 2000 until 2005, the total sample is 132 corporations. Choosing and determining the sample are based on technique of purposive sampling type judgment sampling. Relying on the criteria, there are 61 corporations as the sample, the data is taken for six years from 2000 till 2005, the amount of data (n) is 366. This research applied two variable, they are endogen variable (capital structure and value of the firm), and exogenous variable (capital expenditure, corporate growth, ownership structure, market risk and corporate profitability). Structural Equation Modeling is carried out to analyze this research. The result points out that utilizing of debt is more profitable since the debt cost is smaller than stock cost, and there is taxes benefit of debt purpose. However, the corporate has to notice that utilizing the amount of debt will encourage the increasing of interest load and credit installment, so it has effect on the risk rising in cash flow disability to cover the corporate obligation. It is known as Trade-off Theory which asserts that debt utilizing will produce taxes thrift, but the other side it causes financial distress. Keywords: capital structure, pecking order theory, agency theory, Asymmetric information and Trade-off Theory.

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