test of speed of adjustment towards the capital structure in indonesia telecommunication industry

The purpose of this research was to test whether or not the pecking order theory occurred in telecommunication
industry in Indonesia and also in its speed of adjustment. Using the purposive sampling method and taking 7
years period of data collection from 2006 up to 2012, the data were gathered from the companies’ financial
statement. The data were analyzed using the random effect model of Hausman test with interest bearing debt as
its dependent variable and deficit as its independent variable. Finding from this research showed that pecking
order theory was not applied in the telecommunication industry in Indonesia and it was quite different from the
finding of Huang & Ritter (2009) that publicly traded firms in US adjusted to their target leverage at a
moderate speed with a period of 3.9 years. It also discovered that the fastest growth of the speed of adjustment
was shown by XL Axiata with -493.96% per year, and then Bakrie Telecom with -65.62%. Indosat and Telkom
Indonesia showed a different behavior with a slower speed of adjustment Indosat with 13.22%, and Telkom
Indonesia with 274.14% slower.