Does product diversification matter on capital structure decisions? An empirical study of manufacturing companies in Indonesia

Up till present, there is no convergence conclusion about the relation of product diversification and capital structure. There are three kinds of empirical finding of the relationship: There is positive significance, there is negative significance, and there is not significance. This study aims to examine the influences of product diversification on capital structure decisions. We employ a panel data from 83 companies of 13 manufacturing industries that listed in IDX covering the period 2001 - 2010. We find that both variables: The category of product diversification (CPD) and the degree of relatedness of product diversification (DRD) has a significant negative influence on the capital structure. This finding clearly supports the agency theory.