Debt policy of military-connected firms in Indonesia

Nurul Fitriani, Gery Lusiano Firmansah, Iman Harymawan

Research output: Contribution to journalArticlepeer-review


Indonesia has a thin capitalization policy since 2015. It restricts the maximum interest expense that can be deductible from corporate tax payable. This paper discusses the association between boards with military background and the debt policy of firms, taking into account the thin capitalization policy. This study used a sample of 2, 330 firm-year observations from companies listed on Indonesia Stock Exchange during 2010-2019. A moderated analysis regression was employed to analyze the association of each variable. The result reveals a significant positive correlation with a t-value of 2.14 at a confidence level of 95% between military-connected firms and debt policy. The same correlation also occurred between board of commissioners with the military background and debt policy with a t-value of 2.18 at a 95% confidence level. Meanwhile, the correlation between these variables became significantly negative after the implementation of thin capitalization policy. CEM and Heckman's two-stage method were used to validate the findings. This study is for a listed company to consider the appointment of military background in a board of commissioner position after a period of thin capitalization policy.

Original languageEnglish
Pages (from-to)105-118
Number of pages14
JournalInvestment Management and Financial Innovations
Issue number3
Publication statusPublished - 2022


  • debt restriction
  • debt-to-asset ratio
  • governance
  • Indonesia
  • military-connected firms
  • thin capitalization policy
  • two-tier system


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