The Controlling of Ownership on the relationship between Financial Performance and Capital Structure in Indonesia

Abstract

The purpose of the study was to determine the determinants of the firms' capital structure concerning their maximum financial performance. To reach this aim, the data of the financial statements firms of Indonesia were used. As the first method, a Pearson correlation matrix was applied to determine a statistically significant correlation between capital structure indicator (debt-to-assets ratio) and financial performance and ownership of the firms. The analysis used the data panel multiple regression model to assess the effect of these independent and controlling variables on leverage. Some findings are that profitability has positive (ROA) and negative (ROE) effect on leverage. MBV and tangibility do not affect the capital structure, and firm size negatively impacts on it. In this panel analysis, it was confirmed that the managerial and institutional ownership impact on leverage negatively and positively, respectively. By decreasing the sales growth, the debt ratio entity rises, or they have a negative relationship. Based on these findings, it can be stated that financial performances influenced the capital structure.

The Moderating Role Of Firm Size On Relationship Between Majority Ownership And Debt Policy Of Property Sector

“…Five variables that significantly affect are firm size, firm growth, profitability, and ownership, while asset structure has no significant effect on capital structure in manufacturing firms (Balios et al, 2016) ; (Bandyopadhyay & Barua, 2016). The study (Albart et al, 2020a) states that sales growth, managerial share ownership, institutional share ownership, and firm size have a positive and significant effect on capital structure.…”

“…Majority ownership and debt policy. Albart et al (2020a) and (Tran & Le, 2020) state that concentrated ownership or majority ownership negatively affects the firm's debt policy. Similar results were concluded by Albart et al (2020b) that majority ownership has a negative effect on capital structure, which means that the larger the concentrated ownership or majority, the smaller the debt portion.…”

“…Property is known as one of the sectors that are sensitive to the dynamics of the cost of debt in the market due to mortgage loans and construction debt. In running and developing a property business, financing by debt and equity is common to meet operational and investment needs while increasing income (Albart et al, 2020a); Santosa, 2019). However, many firms experience financial distress and even bankruptcy because they are wrong in taking their capital structure policies, especially debt decisions (Jaros & Bartosova, 2015).…”

“…This debt decision becomes leverage for the firm to develop and run well. However, debt policy must be appropriately considered so as not to cause liquidity and solvency problems (Albart et al, 2020a).…”

“…Revenue growth requires adequate funding support for investment and firm working capital. Investments are generally made for production capacity expansion, product innovation, and business development (Albart et al, 2020a).…”