The Influence of Tax Reform in Shaping the Corporates' Capital Structure-Evidence From Indonesia

Agus Sholikhan Yulianto

Abstract


This research investigated how tax reform influenced the capital structure of the listed companies in the Indonesian Capital Market from 2004 to 2013. The panel data regression analysis showed the increase of the exploitation of debt followed the cut of the corporates' income tax rate that disagree with the corporates' tax shield purpose. This paper demonstrated the crucial role of the persistence measure of cash flow from operating activities as the critical prerequisite for the adjustment of the financing and investing activities impacted by the amendment of the law. The analysis also showed the positive relationship between non-current liabilities and capital expenditures which indicated that the use of external fund was the function of business expansion. The result supported the real economy perspective of the capital structure theory that the role of taxation on the use of borrowing capital occurred through the adjustment of the economic distortion.

 Keywords: Tax, Capital Structure, Leverage, Liquidity, Capital Expenditures


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DOI: https://doi.org/10.31326/.v2i2.784

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