FINANCIAL LEVERAGE AND GROWTH: SMALL VERSUS LARGE INDONESIAN FIRMS

This study empirically examines the relationship between growth and leverage at the small and large firms in a general equilibrium framework. Using the three-stage least method on a sample of Indonesian small and large enterprises. we find that large Indonesian firms suffer form debt overhang while small ones can utilize debt leverage to mcrease 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 capita and interest rates.