Determinant of Banking Capital Structure in Indonesia

Abstract

This study aims to analyze the effect of profitability, liquidity, Non Performing Loans (NPL), and inflation on the banking capital structure during 2015-2020. There are 48 companies as population and the samples obtained 39 companies that fit the criteria by using purposive sampling method. Data analysis technique used panel regression. The best model chosen is the Random Effect Model (REM). The findings of the study indicate that internal banking factor and external factors such as macro variables that had an effect on the capital structure of banking. Banking internal factors consisting of profitability and NPL have a negative effect on capital structure, while liquidity has a positive effect on banking capital structure. Inflation as a macro variable has a negative effect on the banking capital structure. This study looks for the determinants of capital structure considering the importance of capital structure as one of the criteria for assessing the soundness of a bank. These results contribute to the literature on the soundness of banks in terms of their capital structure and have implications for financial institutions, especially banks in determining policies to be able to maintain their capital structure.