CORPORATE LEVERAGE AND FUTURE GROWTH: EVIDENCE FROM INDONESIA'S EMERGING CAPITAL MARKET

This study investigates the relationship between leverage and future corporate growth, using a ten-year sample of Indonesian firms. The leverage effect is found to be insignificant for the overall sample, unlike the earlier findings by Lang et al. (1996) for firms in a well-developed market such as the U.S. However, when firms are sorted by size and Tobin's q, only the small low-q firms indicate a statistically significant negative effect of leverage on future corporate growth. This is evidence consistent with the fact that the Indonesian economy has been dominated by large firms which have better access to capital markets, and also that small firms with high growth potential do not suffer from debt-overhang, although small firms with low growth potential do.