Executive Compensation and Liquidity Effects on Debt Policy of Consumer Cyclical Companies

Purpose: This study examines the effects of executive compensation and liquidity on the debt policy of consumer cyclical companies listed on the Indonesia Stock Exchange (IDX) during the 2021-2024 period, drawing on agency theory and pecking order theory to explain corporate financing behavior.

Research Methodology: A quantitative, explanatory research design was applied using secondary panel data drawn from the audited annual reports of consumer cyclical firms selected through purposive sampling, yielding a balanced panel that was analyzed with panel data regression after classical assumption testing and model selection procedures, including the Chow, Hausman, and Lagrange Multiplier tests.

Results: The fixed effect model was selected as the most appropriate estimator, and the findings indicate that executive compensation exerts a significant negative effect on debt policy, while liquidity exerts a significant negative effect on debt policy, together explaining a substantial proportion of the variance in the debt to equity ratio.

Conclusions: Executives who receive higher compensation tend to adopt more conservative financing behavior, and firms with stronger liquidity positions rely more heavily on internal funds, consistent with agency theory and pecking order theory respectively.

Limitations: The study is restricted to a single industry sector, a four-year observation window, and two explanatory variables, which constrains generalizability.

Contributions: The findings extend capital structure literature in emerging markets and offer practical guidance for boards designing compensation contracts and liquidity management policies that support prudent debt utilization.