—This paper presents the impact of the macroeco-nomic condition on the speed of adjustment of capital structurefor non-ﬁnancial ﬁrms listed in the Indonesian Stock Exchangefrom 1992 to 2010. Based on a two-stage OLS and integratedpartial adjustment approach, the paper ﬁnds that Indonesianﬁrms adjust their leverage faster in bad economic conditionand the adjustment speed of the over-levered ﬁrms is higherthan the under-levered ﬁrms. By controlling the variable of GDPgrowth rate, the over-levered ﬁrms exhibit a faster adjustment ontheir capital structure measured by book value but an insignif-icant adjustment measured by market value. By controlling thevariable of inﬂation rate, the over-levered ﬁrms show a fasteradjustment in their capital structure measured by book valuewhen the GDP growth rate is high. In contrast with previousliterature, the results provide different interpretations about theadjustment speed toward target leverage measured by book andmarket debt ratios.
—capital structure, integrated partial adjustment
The Seventh International Conference on Innovative Mobile and Internet Services in Ubiquitous Computing (IMIS-2013)