Macroeconomic Conditions, Effective Taxation, and Capital Structure Decisions: Evidence from Indonesian Manufacturing Firms

Abstract

This study examines the associations between macroeconomic conditions, realized effective taxation, firm-specific characteristics, and capital structure among manufacturing firms listed on the Indonesia Stock Exchange during 2021–2025. Using a balanced panel of 97 firms and 485 firm-year observations, the study applies panel-data regression with the Random Effects Model (REM) as the baseline specification based on formal model-selection tests. Robustness is assessed using firm-clustered standard errors, a Fixed Effects specification, and additional ETR sensitivity analyses. The results show that the policy interest rate is negatively and statistically significantly associated with capital structure and remains robust across alternative panel specifications. Firm size is positively associated with capital structure in the baseline REM but becomes statistically insignificant under Fixed Effects, indicating specification sensitivity. In contrast, the Effective Tax Rate (ETR) exhibits a negative but statistically insignificant coefficient under firm-clustered inference and remains insignificant across bounded-ETR, positive-tax-expense, and winsorized specifications. Inflation and the remaining firm-specific variables are also statistically insignificant at the conventional 5% level. Overall, the findings indicate that interest rates exhibit a more stable association with corporate leverage than firms’ realized annual effective tax burden. Given the observational design and limited time-series variation in national-level macroeconomic variables, the results should be interpreted as conditional associations rather than causal effects.