TRADE OFF THEORY AND PECKING ORDER THEORY IN THE APPLICATION OF TOURISM INDUSTRY CAPITAL STRUCTURE FINANCING DECISION

Abstract

This research analyze the influence of liquidity, profitability, business risk, systematic risk and company size in which trade off theory (TOT) or pecking order theory (POT) is applied to figure out the proportion of debt and equity financing decision in tourism industry capital structure. The common effect model (pooled EGLS) method is used. The data panel includes 26 tourism industry companies consisting tourist attraction, hotel, restaurant, tour and travel listed in Indonesia Stock Exchange 2008 – 2012. This research finds that liquidity, profitability, business risk, systematic risk and company size significantly influence the proportion of debt and equity financing decision in tourism industry capital structure. TOT mostly is applied in tourism industry capital structure financing decision. Tourist attraction companies tend to apply TOT, while hotel, restaurant, tour and travel companies apply both TOT and POT.