Capital structure behaviour among Indonesian property developers during different business cycles

Imanda Luzari Indomo, Arief Wibisono Lubis

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


Purpose: The issue of capital structure among property developers in Indonesia becomes interesting as the government speeds up housing development. Examining which theory prevails (trade-off versus pecking order) can be done by looking at several determinants of capital structure. This study aims to argue that examining determinants of capital structure in this context should also incorporate business cycles, as the activities of property developers are cyclical. Design/methodology/approach: Using a total of 183 observations of listed property developers from 2010 to 2019, this study uses the ordinary least squares regression technique. The focus is on determinants of capital structure, which are profitability, tangibility, firm size, ownership and potential growth. The observations are divided into different business cycles (expansion, peak, trough and decline) based on economic growth rates. Findings: The results show that the natures of relationships between capital structure (leverage) and its determinants are different during distinct business cycles. For example, profitability has a significant and positive effect on leverage during peak, but the signs are negative during trough and decline. Trade-off theory provides a better explanation of property developers’ capital structure behaviour during peak while pecking order theory is more relevant during trough. It is more difficult to conclude which of these theories is superior in expansion and sideways. Originality/value: There have been limited studies that focus on corporate finance issues of property developers in Indonesia, and no particular attention has been given to the role of business cycles.

Original languageEnglish
Pages (from-to)91-106
Number of pages16
JournalJournal of Financial Management of Property and Construction
Issue number1
Publication statusPublished - 28 Mar 2022


  • Business cycle
  • Capital structure
  • Financial leverage
  • Indonesia
  • Property developers


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