Open AccessThe Mediating Role of Firm’s Performance on The Relationship between Free Cash Flow and Capital Structure
Author(s) -
Parwoto Asep Risman
Publication year - 2021
Publication title -
psychology
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.112
H-Index - 10
ISSN - 0033-3077
DOI - 10.17762/pae.v58i1.871
Subject(s) - free cash flow , cash flow , cash flow statement , capital structure , operating cash flow , business , monetary economics , cash on cash return , cash flow forecasting , profitability index , economics , cash and cash equivalents , finance , debt
This study aims to examine the effect of Firm’s performance as an intervening in the influence of the free cash flow on the capital structure. As well as the direct effect of Firm’s performance and free cash flow on the capital structure. This study uses a path analysis model and polling data from on 22 companies of various industrial subsectors on the Indonesia Stock Exchange (IDX), over a period of 10 years (2009 to 2018). The results show that although free cash flow does not directly affect the capital structure, it is proven that profitability affects the capital structure and can mediate the effect of free cash flow on capital structure. These findings support agency theory, that management prefers to use free cash flow to make investments, so that fluctuations in the free cash flow will affect the financial performance, this condition will ultimately affect the capital structure.