FINANCIAL LEVERAGE AND GROWTH: SMALL VERSUS LARGE INDONESIAN FIRMS

Abstract

This study empirically examines the relationship between growth and leverage at the small and large firms in a general equilibrium framework. Using three-stage least square method on a sample of Indonesian small ones can utilize debt leverage to increase their growth. This study also finds that small firms have higher opportunities to grow due to higher returns on asset and equity, pay lower interest rates, and have lower leverage. However, we find that small firms’ growth and leverage are significantly influenced by macroeconomic variables, measured by the real gross domestic product per capital and interest rates.