The Moderating Role of CEO Characteristics in the Relationship between Financial Conditions and Corporate Debt Policy
DOI:
https://doi.org/10.20414/jed.v7i2.14036Keywords:
Company’s Financial Characteristics, Debt Policy, CEO CharacteristicsAbstract
Purpose: This study investigates the influence of firm financial characteristics—reflecting asymmetric information—on corporate debt policy, while also examining the moderating role of CEO characteristics within the framework of upper echelon theory.
Method: The sample consists of 60 non-financial firms listed on the Indonesia Stock Exchange (IDX) during 2013–2022, selected through purposive sampling. Panel data regression analysis with moderating variables was employed to assess how CEO characteristics interact with internal financial indicators.
Result: Results show that liquidity (current ratio) and profitability (return on equity) have a significant negative effect on companies’ debt-to-equity ratio, indicating that more liquid and profitable firms rely less on external debt. Tangible assets do not significantly influence debt-to-equity ratio. Among CEO characteristics, only tenure significantly moderates the relationship between profitability and debt-to-equity ratio, highlighting the strategic role of experienced CEOs in financing decisions.
Practical Implications for Economic Growth and Development: The findings suggest that capital structure decisions are shaped jointly by internal financial conditions and leadership traits. Firms with stable financial profiles, guided by experienced CEOs, are more likely to establish optimal debt policies, enhancing resilience during economic shocks, safeguarding employment, and improving competitiveness—ultimately supporting broader economic growth.
Originality/Value: This study contributes by integrating asymmetric information theory and upper echelon theory into a unified analytical model. By revealing how CEO characteristics moderate the impact of financial conditions on debt policy, it offers deeper insight into the complex dynamics of strategic financing decisions.
Downloads
References
Abbadi, A. A. (2019). Determinants of capital structure in industrial companies: Conservative policy—Applied study on Jordanian industrial for the period (2014–2016). International Journal of Business and Management, 14(2), 125. https://doi.org/10.5539/ijbm.v14n2p125
Abdullahi, S. (2020). CEO tenure and financing decisions of Nigerian non-financial listed firms: A dynamic panel approach. Journal of Accounting Business and Finance Research, 10(2), 76–83. https://doi.org/10.20448/2002.102.76.83
Al-Ahdal, W. M., Almaqtari, F. A., Zaid, D. A., Al-Homaidi, E. A., & Farhan, N. H. (2022). Corporate characteristics and leverage: Evidence from Gulf countries. PSU Research Review, 6(2), 120–140. https://doi.org/10.1108/PRR-01-2020-0001
Almulhim, A. A. (2023). Corporate sustainability and financial performance: The moderating effect of CEO characteristics. Sustainability, 15(16), Article 12664. https://doi.org/10.3390/su151612664
Asiedu, M. (2021). Firm capital structure and financial sector performance in Nigeria. Economics, 10(4), 112. https://doi.org/10.11648/j.eco.20211004.12
Banerjee, S., Humphery?Jenner, M., Nanda, V., & Tham, T. M. (2018). Executive overconfidence and securities class actions. Journal of Financial and Quantitative Analysis, 53(6), 2685–2719. https://doi.org/10.1017/s0022109018001291
Bashir, Z., Arshad, M. U., Asif, M., Abbas, M. A. Y., & Ali, H. (2020). Role of business age, scale & risk in debt financing choices for the Pakistani textile & apparel industry. Financial Internet Quarterly, 16(3), 119–136. https://doi.org/10.2478/fiqf-2020-0022
Ciappei, C., Liberatore, G., & Manetti, G. (2023). A systematic literature review of studies on women at the top of firm hierarchies: Critique, gap analysis and future research directions. Sustainability Accounting, Management and Policy Journal, 14(7), 202–231. https://doi.org/10.1108/SAMPJ-10-2022-0557
Goyal, R., Kakabadse, N., & Kakabadse, A. (2019). Improving corporate governance with functional diversity on FTSE 350 boards: Directors’ perspective. Journal of Capital Markets Studies, 3(2), 113–136. https://doi.org/10.1108/jcms-09-2019-0044
Güner, A. (2016). The determinants of capital structure decisions: New evidence from Turkish companies. Procedia Economics and Finance, 38, 84–89. https://doi.org/10.1016/s2212-5671(16)30180-0
Han, S., Cui, W., Jin, C., & Fu, Y. C. (2019). Female CEOs and corporate innovation behaviors—Research on the regulating effect of gender culture. Sustainability, 11(3), Article 682. https://doi.org/10.3390/su11030682
Hartono, J., & Sugiyanto, C. (2018). Metode pengumpulan dan teknik analisis data (pp. 168–192). Penerbit Andi.
James, J. K. (2023). Debt financing, liquidity, company size and operational efficiency of companies listed at Nairobi Securities Exchange, Kenya. International Journal of Economics Business and Management Research, 7(11), 19–32. https://doi.org/10.51505/ijebmr.2023.71102
Kokeyeva, S., & ??????????, ?. ?. (2019). Capital structure choice in SMEs: Evidence from Kazakhstan. International Journal of Management Entrepreneurship Social Sciences and Humanities, 2(2), 77–87. https://doi.org/10.31098/ijmesh.v2i2.16
Koperunthevy, K. (2023). Determinants of debt financing decision in Sri Lankan listed companies. International Journal of Accounting and Business Finance, 9(2), 172–187. https://doi.org/10.4038/ijabf.v9i2.147
Martini, E., Ramli, M. A., Gustyana, T. T., & Nugraha, N. (2021). Impact of activity ratio, profitability, liquidity, and asset structure on capital structure in food and beverages companies listed on Indonesia Stock Exchange period 2015–2019. Jurnal Manajemen Indonesia, 21(2), 112. https://doi.org/10.25124/jmi.v21i2.3514
Matemilola, B. T., Bany-Ariffin, A. N., Azman-Saini, W. N. W., & Nassir, A. M. (2018). Does top managers’ experience affect firms’ capital structure? Research in International Business and Finance, 45, 488–498. https://doi.org/10.1016/j.ribaf.2017.07.184
Mo, K., Kim, Y. J., & Park, K. J. (2019). Chief executive officer inside debt holdings and labor investment efficiency. Asia-Pacific Journal of Financial Studies, 48(4), 476–502. https://doi.org/10.1111/ajfs.12269
Mohajan, H. (2020). Quantitative research: A successful investigation in natural and social sciences. Journal of Economic Development, Environment and People, 9(4).
Napitupulu, R. B., Simanjuntak, T. P., Hutabarat, L., Damanik, H., Harianja, H., Sirait, R. T. M., & Lumban Tobbing, C. E. R. (2021). Penelitian bisnis, teknik dan analisa dengan SPSS - STATA - Eviews. Madenatera.
Rao, P., Kumar, S., Chavan, M., & Lim, W. M. (2023). A systematic literature review on SME financing: Trends and future directions. Journal of Small Business. https://doi.org/10.1080/00472778.2021.1955123
Rehan, R., Abdul Hadi, A. R., Hussain, H. I., & Adnan Hye, Q. M. (2023). Capital structure determinants across sectors: Comparison of observed evidences from the use of time series and panel data estimators. Heliyon, 9(9), e19618. https://doi.org/10.1016/j.heliyon.2023.e19618
Rohaizan, A. A., Latif, M. S. A., Zulkifli, N. Z., Haswani, W. N. S. W., & Zainoddin, A. I. (2021). Determinants of capital structure from Shariah-compliant firms in travel, leisure and hospitality sector in Malaysia. International Journal of Academic Research in Business and Social Sciences, 11(9). https://doi.org/10.6007/ijarbss/v11-i9/10889
Salim, M. N., & Susilowati, R. (2020). The effect of internal factors on capital structure and its impact on firm value: Empirical evidence from the food and beverages industry listed on Indonesian Stock Exchange 2013–2017. International Journal of Engineering Technologies and Management Research, 6(7), 173–191. https://doi.org/10.29121/ijetmr.v6.i7.2019.434
Sanga, M. H. (2023). Board size and leverage in Indonesia’s pharmaceutical companies: The moderating role of profitability. JPMS, 1(2), 23–29. https://doi.org/10.61106/jpms.v1i2.9
Septiani, M. (2023). The effect of profitability, company size, and managerial ownership on debt policy. IJAEB, 1(2), 237–247. https://doi.org/10.24912/ijaeb.v1i2.237-247
Sheikh, S. (2024). CEO power, corporate governance, and firm leverage. Journal of Economic Analysis, 3(3), 37–48. https://doi.org/10.58567/jea03030012
Wang, X., Deng, S., & Alon, I. (2021). Women executives and financing pecking order of GEM-listed companies: Moderating roles of social capital and regional institutional environment. Journal of Business Research, 136, 466–478. https://doi.org/10.1016/j.jbusres.2021.07.055
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Heriyanto Heriyanto, Novita Febriany, Mischella Engel
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
