CORPORATE LEVERAGE AND FUTURE GROWTH: EVIDENCE FROM INDONESIAS EMERGING CAPITAL MARKET

• Main Authors: Barry Lin, T Chotigeat, Bingsheng Yi
• Format: Article
• Language: English
• Published: People & Global Business Association (P&GBA) 2004-06-01
• Series: Global Business and Finance Review
• Subjects: corporate leverage; future growth; emerging capital market; leverage effect
• Online Access: http://www.gbfrjournal.org/pds/journal/thesis/20150624134951-MOUH9.pdf

This study investigates the relationship between leverage andfuture corporate growth, using aten-yearsampleofIndonesianfirms. Theleverageeffectisfoundtobeinsignificantfortheoverall sample, unlike the earlierfindings by Lang et al. (1996) for firms in a well-developed market such as the U.S. However, when firms are sorted by size and Tobins q, only the small low-q firms indicate a statistically significant negative effect of leverage on future corporate growth. This is evidence consistent with the fact that the Indonesian economy has been dominated by large firms which have better access to capital markets, and also that small firms with high growth potential do not suffer from debt-overhang, although smallfirms with low growth potential do.