Political Patronage and Capital Structure of Companies in Indonesia

La Ode Ahmad Safar Tosungku, Hadri Kusuma, D. Agus Harjito, Zaenal Arifin


This quantitative and empirical study examines the effect of coalition political patronage, non-coalition political patronage, and political regimes on the company’s capital structure. All companies listed in the Indonesian stock exchange for 2005 to 2018 were the main target population of this study. After using certain criteria such as non-financial companies and complete data, this study analyzes 373 firm-year observations. The data in the form of company annual financial reports are obtained from the Indonesian Capital Market Directory (ICMD). The model used to test the proposed hypotheses is the common effect model with the Ordinary Least Square assumption. The results showed that the three types of political patronage significantly improve the debt used by the companies in the samples. The findings suggest that creditors seem more confident to give loans to the companies having political patronage. The companies do not need to use financing sources such as selling new shares or company profits.



Keywords: capital structure, patronage, political coalition, regime.




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