The Dominance of the Agency Model on Financing Decisions

Bramantyo Djohanputro

Bramantyo Djohanputro PPM School of Management

Keywords: Agency Model, Financing Decisions

Abstract

There are some issues about how companies consider their financing. These issues are related to the amount, source, type, and the structure of such financing. So far, there is no uniform model that is able to explain how companies deal with these issues. There are three competing, dominant theories of financing decision making, i.e. the Pecking Order Theory, the Static Trade-off Theory, and the Agency Model Theory. This study attempts to explore which theory explains the best way for companies in the consumer industry to decide their financing method. There are five hypotheses to be tested in this study. Using data from public listed companies on the Indonesian Stock Exchange from 2008 to 2011, it seems that the Agency Model Theory is more dominant than the other two theories in explaining the way companies fulfill their financing needs.

Author Biography

Bramantyo Djohanputro, PPM School of Management

DJOHANPUTRO, Bramantyo, is a teaching staff and Director of Finance and Human Resources Development at the PPM Institute of Management, Jakarta, Indonesia. He earned his Ph.D. (1998) in Accounting and Finance, Department of Accounting and Finance, Business School, The University of Birmingham, England; and his MBA (1993) International Banking and Finance, from the same university. He has bachelor degree (1987) majoring in Chemistry Department of Chemistry from Institut Teknologi Bandung. He has written several books and articles published in national publisher and international journal. He is now active in some academic and practical fields, mainly in finance, risk, and governance.
Author’s contact details: Jl. Menteng Raya no. 9, Jakarta 10340; Phone: 0816 1337213 and 0812 95788686; Fax: 021 3909311; and his e-mail: brm@lppm.ac.id and bram.finance@gmail.com.

References

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