Open AccessThe Effect of Capital Structure on Profitability of Electricity Companies In Southeast Asia
Author(s) -
Agung Aryo Wibowo,
Rida Rahim
Publication year - 2019
Publication title -
jurnal organisasi dan manajemen
Language(s) - English
Resource type - Journals
eISSN - 2442-9155
pISSN - 2085-9686
DOI - 10.33830/jom.v15i1.297.2019
Subject(s) - capital structure , return on assets , profitability index , return on equity , debt ratio , panel data , economics , return on capital employed , weighted average cost of capital , return on capital , debt to equity ratio , cost of capital , risk adjusted return on capital , capital adequacy ratio , monetary economics , finance , debt , business , econometrics , financial economics , financial capital , capital formation , microeconomics , profit (economics) , population , demography , sociology , nonprobability sampling
Capital structure is increasingly important in determining the optimal combination of funding for investment needs that can increase firm value from profitability. The study aims to examine the effect of capital structure on profitability of electricity companies in Southeast Asia. The study used multiple regression model represented by pooled least square to calculate 48-panel data from the annual financial report during the time period of 2009-2016. We utilized short-term debt to total assets (STD), long-term debt to total assets (LTD), total debt to total assets (TD), and debt to equity ratio (DER) as proxies of capital structure (independent variables). Operating income margin (OIM), return on asset (ROA), and return on equity (ROE) were the profitability proxies (dependent variables). Firm size and firm age were used as control variables in the study. The results of this study indicate that STD and LTD have a negative relationship that consequently has significant effect on LTD and OIM. Other than positive and negative relationships between the capital structure (TD and DER) and profitability, this study also finds that TD and DER have positive significant influence on OIM and ROE, but have negative insignificant relation with ROA. Thus, it is necessary to optimize the capital structure by adjusting the target of capital structure that can provide a balance on the marginal cost and marginal benefit.