Paradox Choice of External Financing Needs and Financing Decision: an Empirical Study of Manufacturing Companies in Indonesia
External financing is an important part of financial management which is related to rational decision making on investment, funding and dividend policies for value creation. External Financing Needs (EFN) are calculated according to sales growth targets, which involve sales change variables, capital intensity ratios, financial, operational accounts payable, profit margins and retained earnings. Furthermore, how this variable influences funding decisions that are proxy by the Debt to Equity Ratio. The study was conducted on all manufacturing sector companies listed on the Indonesia Stock Exchange in 2011-2017, to prove the effect of changes in assets, additional retained earnings, external financing needs and sales growth on funding policies. The results show that retained earnings and asset changes have a significant effect on increasing DER and External Financing Needs has a significant negative impact on DER, while sales growth does not affect DER. This research shows the paradox between RE and DER as well as between EFN and DER to manifest the Pecking Order theory. The reason is that the company has a negative EFN as an indication of having a larger retained earnings, thus lowering the DER, the findings indicate otherwise.