Revisiting the Relationship between Capital Structure and Investment Decision: Evidence from Consumer Goods Industry in an Emerging Market

This study explores the interdependence of capital structure and investment decisions by documenting the relationship between corporate leverage and investment choices. By using the data of consumer goods companies listed in Indonesia Stock Exchange for three years (2008-2010) as the sample, the obtained data was analyzed by applying multivariate regression analysis and t-test. The study found that the significant likelihood of a firm increasing leverage to increase the company value, and investors saw this as the company is in a high-growth level. The result also revealed that investment decision had influenced positively on the company value, which meant the investors to assume the management had performed well in searching and investing the obtained capital from debt. It indicated that the market still viewed consumer goods industry as one of the prospective industries in Indonesia due to the fact of the big number of people lives in Indonesia providing a captive market, which are the industry characteristics and the influencing market conditions.