Empirical Examination of the Pecking Order Hypothesis Among Publicly Listed Mining Firms on the Indonesia Stock Exchange in the Post-Global Financial Crisis Era (2011–2019)

Abstract

This study rigorously examines the empirical validity of the Pecking Order Hypothesis (POH) across heterogeneous investment intensities among 51 publicly listed mining firms on the Indonesia Stock Exchange (IDX) over the post-global financial crisis period of 2011–2019, utilizing panel data at a quarterly frequency. Employing a quantile regression approach, this research seeks to disentangle firm-level financing preferences by assessing the extent to which internal funds are prioritized relative to external financing, both debt and equity, under varying investment conditions. Key findings show limited support for the POH across the full sample. The empirical evidence reveals limited support for the POH across the full sample. Notably, external financing sensitivity exhibits a positive association with escalating levels of corporate investment, proxied through capital expenditure ratios, suggesting a deviation from the theoretical predictions of the hypothesis. The POH holds only within the metal and mineral extraction subsector, while firms with low leverage and low profitability show partial adherence at specific investment quantiles. Subsectoral analysis further indicates that the POH holds only within the metal and mineral extraction subsector, whereas firms with low leverage and diminished profitability exhibit partial adherence to the hypothesis at selective quantiles of investment intensity. Conversely, when disaggregated by ownership structure and firm size, the POH demonstrates no empirical validity whatsoever, underscoring the context-dependent and sector-specific nature of capital structure behavior in emerging markets. These results suggest that Indonesian mining firms deviate from traditional financing hierarchies, preferring external financing over internal funds during the post-crisis recovery period.