The Determinants of Islamic Banking Capital Structure in Indonesia

Abstract

The decision about capital structure is an important part of the banking industry because it is related to the interests of many parties such as investors, creditors, and company management. Therefore, this study aims to analyze and explain the factors that influence the capital structure of Islamic banking in Indonesia. Capital structure is measured by the Debt to Equity Ratio (DER). This research examines the determinants and causal relationships among the major determinants of Capital structure, namely the bank’s profitability, risk, and Firm size. The population of this study is all Islamic banks registered in Otoritas Jasa Keuangan (OJK), with observation periods starting in 2010 until 2018. The selection of samples in this study is a purposive sampling method. Data analysis and hypothesis testing were carried out by using the Eviews 11. The results of the study showed that all the independent variables had a significant effect on the capital structure simultaneously. But, partially only ROA and Firm size had a significant effect on Capital Structure of Islamic Bank in Indonesia. The results indicate that Islamic bank managers in Indonesia choose the capital structure sourced from internal funds and the larger the company, it is necessary to rearrange capital structure, to obtain the sustainability of the company in the future.